<PAGE> 1
As filed with the Securities and Exchange Commission on December 28, 1995
Registration No. 33-70180
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
POST EFFECTIVE
Amendment No. 3 to
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-----------------------
NASTECH PHARMACEUTICAL COMPANY INC.
(Exact Name of Registrant as Specified in Charter)
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Delaware 7391 11-2658569
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(State or other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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45 Davids Drive
Hauppauge, NY 11788
(516) 273-0101
(Address and Telephone Number of Principal Executive Offices )
Dr. Vincent D. Romeo
President and Chief Executive Officer
NASTECH PHARMACEUTICAL COMPANY INC.
45 Davids Drive
Hauppauge, NY 11788
(516) 273-0101
(Name, address and Telephone Number of Agent for Service)
Copies to:
Bruce R. Thaw, Esq.
45 Banfi Plaza
Farmingdale, NY, 11735
(516) 752-1760
Approximate date of proposed sale to public: As soon after the effective date
of the Registration Statement as is practicable.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box /X/.
CALCULATION OF REGISTRATION FEE: Previously Submitted
<PAGE> 2
NASTECH PHARMACEUTICAL COMPANY INC.
Cross Reference Sheet
Pursuant to Rule 404 (a) of Regulation C
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Item of Form SB-2 Location in Prospectus
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1. Forepart of Registration Statement and Outside Front Cover Page of
Prospectus ................................................................ Facing Page; Cover Page
2. Inside Front and Outside Back Cover Page of Inside Front Cover Page; Outside Back Cover
Prospectus................................................................. Page
3. Summary Information and Risk Factors ................................... Prospectus Summary; Summary Financial
Information; Risk Factors
4. Use of Proceeds......................................................... Use of Proceeds
5. Determination of Offering Price ........................................ Risk Factors; Cover Page; Description of Warrants
6. Dilution................................................................ Dilution; Risk Factors
7. Selling Security Holders ............................................... Not Applicable
8. Plan of Distribution.................................................... Cover Page, Underwriting
9. Legal Proceedings....................................................... Not Applicable
10. Directors, Executive Officers, Promoters and Control
Persons.................................................................... Management; Principal Stockholders
11. Security Ownership of Certain Beneficial Owners and Management........ Management; Principal Stockholders
12. Description of Securities Description of Securities; Description of
To Be Registered .......................................................... Warrants; Description of Common Stock
13. Interest of Named Experts and Counsel ................................. Legal Matters
14. Disclosure of Commission Position on Indemnification for Securities Act
Liabilities ............................................................... Not Applicable
15. Organization Within Last Five Years .................................. Not Applicable
16. Description of Business ............................................... Business
17. Management's Discussion and Analysis Management's Discussion and Analysis of Financial
or Plan of Operation....................................................... Condition and Results of Operation
18. Description of Property................................................ Business
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<PAGE> 3
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19. Certain Relationships and Related
Transactions............................................................... Certain Transactions
20. Market for Common Equity and Related Stockholder Description of Common Stock; Shares Eligible for
Matters.................................................................... Future Sale
21. Executive Compensation................................................. Management
22. Financial Statements................................................... Financial Statements
23. Changes in and Disagreements with
Accountants and Financial Disclosure ...................................... Not Applicable
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<PAGE> 4
NASTECH PHARMACEUTICAL COMPANY INC.
1,485,000 Shares of Common Stock
Issuable Upon the Exercise of 1,485,000
Redeemable Common Stock Purchase Warrants
Each Redeemable Common Stock Purchase Warrant (the "Warrants")
entitles the registered holder thereof to purchase, at any time through
December 7, 1996, one share of the Common Stock of the Company, $.006 par value
(the "Common Stock"), at a price of $5.50 (the "Initial Exercise Price"). The
Warrants are subject to redemption by the Company at $.05 per Warrant on 30
days prior written notice if the closing bid price for the Common Stock, as
reported on the automated quotation system of the National Association of
Securities Dealers, Inc. ("NASDAQ") for 20 consecutive trading days ending
within 10 days of the notice of redemption of the Warrants, is in excess of
$5.63 (the "Initial Notice Price"). Both the Initial Notice Price and the
Initial Exercise Price are subject to adjustment under certain circumstances.
See "Description of Securities."
The Warrants were issued as part of 742,500 Units each consisting of
two shares of Common Stock and two Warrants (the "Units") sold in a public
offering pursuant to a Registration Statement which became effective on
December 7, 1993. The Warrants became transferable, separate from the shares of
Common Stock on or about December 9, 1993.
The Company's Common Stock is quoted on the National Association of
Securities Dealers' Automated Quotation (NASDAQ) System under the symbol
"NSTK". On December 22, 1995 the closing bid and asked prices of the Company's
Common Stock was $9.50 and $9.87 respectively.
The Initial Exercise Price of the Warrants and other terms have been
arbitrarily determined by negotiation between the Company and Barber & Bronson
Incorporated (the "Representative") and may bear no relation to the Company's
assets, book value, potential earning capacity or any other recognized criteria
of value. (See "Underwriting").
THESE SECURITIES ARE SPECULATIVE, INVOLVE A HIGH DEGREE OF RISK, AND SHOULD BE
PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. IN
ADDITION, PURCHASERS OF THE SHARES WILL SUFFER IMMEDIATE AND SUBSTANTIAL
DILUTION. SEE "RISK FACTORS" AND "DILUTION" ON PAGES 10 AND 17, RESPECTIVELY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-------------------------------------------
The date of this Prospectus is , 1996
<PAGE> 5
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Exercise Price to Public Underwriting Proceeds to the Company
Commissions (1) (2)
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Price Per Share on
Exercise of a Warrant... $5.50 $.275 $5.225
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Total (3)...................... $8,167,500 $408,375 $7,759,125
- --------------------------------------------------------------------------------------------------------------------
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(1) The Company has agreed to retain the Representative to solicit Warrant
exercises. Upon exercise of any Warrants, the Company will pay the
Representative a fee of 5% of the aggregate exercise price if (i) the
market price of the Company's Common Stock on the date the Warrant is
exercised is greater than the exercise price of the Warrants; (ii) the
exercise of the Warrant was solicited by a member of the National
Association of Securities Dealers, Inc.; (iii) the Warrant is not held
in a discretionary account; (iv) disclosure of compensation
arrangements was made both at the time of the offering and at the time
of exercise of the Warrant; and (v) the solicitation of exercise of
the Warrant was not in violation of Rule 10b-6 promulgated under the
Exchange Act.
(2) Before deducting expenses in connection with this offering estimated
at $25,000, payable by the Company, not including the selling expenses
described in Note 1 above. The net proceeds to the Company, after
deducting all commissions, selling and other expenses in connection
with the offering, are estimated to be approximately $7,734,125.
(3) Assumes that all of the Warrants are exercised, of which there can be
no assurance.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. THE DELIVERY OF
THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
The Company furnishes its shareholders annual reports containing
financial statements audited by independent public accountants and will also
furnish its shareholders such interim and other reports as it deems appropriate
or as required by regulation.
2
<PAGE> 6
The Company's nasal delivery technology has been utilized in the product
pictured below. Stadol(R) NS(TM) is nasally delivered butorphanol tartrate, a
narcotic analgesic, sublicensed by the Company to Bristol-Myers Squibb Company.
[ Insert product photograph ]
Stadol(R) NS(TM) is the registered trademark of Bristol-Myers Squibb
Company.
3
<PAGE> 7
NASTECH PHARMACEUTICAL COMPANY INC.
1,485,000 Shares of Common Stock
Issuable Upon the Exercise of 1,485,000
Redeemable Common Stock Purchase Warrants
Exercise Price - $5.50 per Share
PROSPECTUS
-------------------------------
, 1996
4
<PAGE> 8
TABLE OF CONTENTS
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Page
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Glossary 6
Prospectus Summary 7
Summary Financial Information 9
The Company 7
Risk Factors 10
Dilution 16
Use of Proceeds 17
Capitalization 19
Price Range of Common Stock 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 21
Business 24
Management 33
Principal Shareholders 39
Certain Transactions 38
Description of Securities 40
Description of Warrants 41
Description of Common Stock 40
Shares Eligible for Future Sale 44
Legal Matters 45
Experts 45
Additional Information 45
Financial Statements F-1
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5
<PAGE> 9
GLOSSARY
The following technical terms are used in this Prospectus and are
related to the Company's business.
Bioavailability. The amount or concentration of an administered drug that can
be determined, by special testing techniques, to be present in the circulating
bloodstream. Synonymous with "blood levels", "plasma levels" and "serum
levels" of the applicable drug.
Food and Drug Administration (FDA). A division of the U.S. Department of
Health and Human Services whose responsibility it is to approve for use in
humans, any new drug, drug application, drug delivery system or medical device.
Notice of Claimed Investigational Exemption for a New Drug (IND). A formal
application to the FDA, containing relevant technical and scientific
documentation, for permission to test a new chemical entity, new route of drug
administration or a new use of an old drug in humans.
Nasal Delivery. A method of administering a drug by application directly into
the nasal cavity. The form of the drug will usually be as a drop, spray or
gel.
Nasal Mucosa. The lining of the nasal cavity which, because of its rich blood
supply, allows for the systemic absorption into the blood stream of many drugs
placed in contact with it.
New Drug Application (NDA). A formal application to the Food and Drug
Administration, containing relevant scientific and technical documentation,
requesting permission to begin commercial manufacturing and marketing of newly
developed and tested prescription or over-the-counter (OTC) drugs. NDAs are
submitted to the FDA following the completion and analysis of all required
animal and human testing.
Pharmacologically Active. Bringing about a biological effect.
Side Effect. An effect brought about by a drug other than the desired
therapeutic effect.
Systemic Absorption. The carrying of a drug throughout the entire body by the
bloodstream.
Toxicity. Harmful or unwanted side effects following the administration of a
drug.
6
<PAGE> 10
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified
in its entirety by reference to the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this
Prospectus. Unless otherwise indicated, the information in this Prospectus does
not give effect to the exercise of: (i) the Representative's Warrants; or (ii)
options granted or available for grant under the Company's Incentive Stock
Option Plan.
THE COMPANY
Nastech Pharmaceutical Company Inc. (the "Company") is engaged in
research and clinical testing activities in an effort to develop nasally
administered forms of pharmaceuticals that are currently available in oral,
injectable or other dosage forms. The Company believes that advantages
associated with the nasal delivery of certain pharmaceuticals include rapid
systemic absorption, lower required dosages and quicker onset of desired
effect. Nasal delivery may also allow for the systemic administration of drugs
that cannot be administered by the oral route due to significant liver and/or
gastrointestinal metabolism, thereby allowing for a broader based use of
products that are currently restricted in application because of the
limitations of injectable therapy. In addition, nasal delivery may afford a
cost effective alternative to the injectable delivery form for some
pharmaceuticals. Potential side effects, including the possibility of nasal
irritation have to be studied on a drug by drug basis.
Prior to the marketing of any nasally administered form of
pharmaceutical agent in the United States, approval by the United States Food
and Drug Administration ("FDA") must be obtained. A research and development
program is currently in progress with respect to four pharmaceuticals for which
the Company has patent rights for nasal administration.
The Company was originally incorporated under the laws of the State of
New York on March 3, 1983 and was reincorporated in the State of Delaware on
September 23, 1983.
7
<PAGE> 11
THE OFFERING
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Securities Offered ................ 1,485,000 Shares of Common Stock are offered by the Company, subject to
adjustment, pursuant to the exercise of the Warrants. The Warrants were issued as
part of 742,500 Units each consisting of two shares of Common Stock and two
Warrants sold in a public offering pursuant to a Registration Statement which
became effective on December 7, 1993. Each Warrant entitles the holder to
purchase one share of Common Stock at a price of $5.50 at any time through
December 7, 1996. Since December 7, 1994, the Warrants have been subject to
redemption by the Company at $.05 per Warrant on 30 days' prior written notice if
the closing bid price for the Common Stock, as reported on NASDAQ is in excess of
$5.63 for 20 consecutive trading days ending within 10 days of the notice of
redemption of the Warrants.
Use of Proceeds .................... To fund research and development; and for working capital and general corporate
purposes. See "Use of Proceeds."
Risk Factors ......................... The securities of the Company offered hereby are highly speculative. An
investment herein is not recommended for investors who do not have sufficient
financial means to be able to sustain the loss of their entire investment. See
"Risk Factors" on pages 10 through 15 for factors investors should consider
carefully before purchasing the securities offered hereby.
Common Stock outstanding as of
the date of this Prospectus .......... 3,221,447 shares
Common Stock to be outstanding
after the Offering (1) ................... 4,706,447 shares
NASDAQ Symbols (2) Common Stock Warrants
------------ --------
NSTK NSTKW
- --------------------
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(1) Does not give effect to an aggregate of up to 135,000 shares of Common
Stock issuable upon exercise of: (i) the Representative's Warrants; and (ii)
the Warrants included in the Units issuable upon exercise of the
Representative's Warrants. Also, does not include 483,333 shares of Common
Stock reserved for issuance under the Company's Stock Option Plan (of which
options for 214,749 shares have been granted).
(2) NASDAQ quotation does not imply that a meaningful, sustained market
for the Common Stock or Warrants will develop. If the Company fails to meet
certain maintenance standards imposed by the NASD, delisting of its securities
from NASDAQ is possible. See "Risk Factors."
8
<PAGE> 12
SUMMARY FINANCIAL INFORMATION
The summary financial information presented below for the three months
ended September 30, 1995 and 1994 and for the years ended June 30, 1995 and
1994 have been derived from the financial statements of the Company. The
financial statements as of June 30, 1995 and 1994 have been audited by Robbins,
Greene, Horowitz, Lester & Co., LLP whose report with respect thereto appears
elsewhere in the Prospectus. All data herein have been restated to reflect a
one for three reverse stock split effective November 8, 1993. The information
set forth below is qualified in its entirety by reference to, and should be
read in conjunction with, the financial statements and related notes contained
elsewhere in this Prospectus.
STATEMENT OF OPERATIONS INFORMATION:
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<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
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1995 1994 1995 1994
---- ---- ---- ----
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Revenues $ 2,937,783 $ 2,200,245 $ 881,510 $ 708,236
Net Income (Loss) $ (79,445) $ 207,647 $ 22,352 $ 96,322
Income (Loss) Per
Common and Common Equivalent
Share $ (.03) $ .08 $ .01 $ .03
Weighted Average Common
and Common Equivalent
Shares Outstanding 3,119,718 2,524,432 3,849,776 3,242,876
</TABLE>
BALANCE SHEET INFORMATION:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
------------------
Actual As Adjusted (1)
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Current Assets $ 5,751,313 $13,485,438
Total Assets $ 6,012,210 $13,746,335
long-term debt $ 174,894 $ 174,894
Stockholders' Equity $ 4,310,534 $12,044,659
- ---------------
</TABLE>
(1) Adjusted to give effect to the Shares offered hereby upon the exercise of
the Warrants less warrant solicitation fees and estimated expenses of this
Offering and assuming no exercise of the Representative's Warrants.
9
<PAGE> 13
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE IN
NATURE, INVOLVES A HIGH DEGREE OF RISK AND SHOULD ONLY BE MADE BY INVESTORS WHO
HAVE SUFFICIENT FINANCIAL MEANS TO BE ABLE TO SUSTAIN THE LOSS OF THEIR ENTIRE
INVESTMENT. PROSPECTIVE INVESTORS SHOULD GIVE CAREFUL ATTENTION TO THESE RISK
FACTORS, AS WELL AS THE OTHER INFORMATION DESCRIBED ELSEWHERE IN THIS
PROSPECTUS, INCLUDING THE FINANCIAL STATEMENTS AND NOTES THERETO, IN EVALUATING
THE COMPANY AND ITS BUSINESS BEFORE MAKING A DECISION TO PURCHASE THE SHARES
OFFERED HEREBY.
LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES. Since its
inception in March 1983, the Company has accumulated net losses of
approximately $6.3 million. Since the Company's proposed products will require
significant additional clinical testing and investment prior to
commercialization, such losses may increase in the near-term as the Company
expands its research, development and clinical trials and seeks regulatory
approval of such products. There can be no assurance that any of the Company's
products will meet applicable regulatory standards, obtain required regulatory
approvals, be capable of being produced in commercial quantities at reasonable
costs or be successfully marketed. The Company may incur substantial operating
losses unless and until product sales and/or royalty payments generate
sufficient revenues to fund its continuing operations. The Company expects to
have quarter-to-quarter fluctuations in revenues, expenses and losses, some of
which could be significant.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY INFORMATION. The
Company's ability to compete effectively with other companies is materially
dependent upon the proprietary nature of its patents and technologies. The
Company is the exclusive licensee of five patents and has obtained five
additional patents in the United States and corresponding or related foreign
patents all relating to the nasal delivery of specific therapeutic agents and
compositions for such delivery. See "Business - Patents and Proprietary
Rights."
The patent positions of pharmaceutical firms generally are highly
uncertain and involve complex legal and factual questions. No consistent policy
has emerged regarding the breadth of claims covered in pharmaceutical or
biotechnology patents. The invalidation of key patents or proprietary rights
owned or licensed by the Company could have an adverse effect on the Company
and on its business prospects. Because of the differences in patent laws and
laws concerning proprietary rights, the extent of protection provided by United
States patents or proprietary rights owned by or licensed to the Company may
differ from those of their foreign counterparts. No assurance can be given that
patents issued to or licensed by the Company will not be challenged,
invalidated or circumvented, or that any rights granted thereunder will provide
competitive advantages to the Company. Further, the Company's existing patents
may expire prior to regulatory approval and commercial development of a
proposed pharmaceutical product. The earliest expiration date of a United
States patent owned by or licensed to the Company is 1998.
The Company could incur substantial costs in defending any patent
infringement suits brought against the Company or in asserting the Company's
patent rights, including those granted by third parties, in a suit against
another party. In addition, the United States Patent and Trademark Office could
institute proceedings against the Company in connection with one or more of the
Company's patents and such proceedings could result in an adverse decision as
to the validity or scope of the patents.
10
<PAGE> 14
The Company also relies on trade secrets, know-how and continuing
technological advancement to maintain its competitive position. The Company has
utilized confidentiality agreements relating to such information with third
parties. No assurances can be given that such obligations of confidentiality
will be honored or that the Company can effectively protect its rights to any
unpatented trade secrets. See "Business - Patents and Proprietary Rights."
GOVERNMENT REGULATION. The FDA and comparable agencies in foreign
countries impose requirements on the introduction of therapeutic pharmaceutical
products into the marketplace. Prior to marketing, any therapeutic product
developed by the Company must undergo rigorous preclinical testing and clinical
trials, as well as an extensive regulatory approval process mandated by the FDA
and foreign regulatory agencies. These procedures require the expenditure of
substantial resources, may take several years or longer and may vary
substantially based upon the type, complexity and novelty of the pharmaceutical
product. Government regulation also affects the manufacturing, marketing and
pricing of pharmaceutical products.
Government regulation may delay or prevent the marketing of the
Company's products or proposed products for a considerable period of time,
impose costly procedures upon the Company's activities and confer a competitive
advantage to larger companies or companies more experienced in regulatory
affairs that compete with the Company. There can be no assurance that FDA or
other regulatory approval for any products developed by the Company will be
granted on a timely basis, or at all. Delay in obtaining or failure to obtain
such regulatory approvals will materially adversely affect the Company's
business, liquidity and capital resources. See "Business - Government
Regulation."
HEALTH CARE REIMBURSEMENT. The Company's ability to commercialize
therapeutic nasal pharmaceuticals successfully may depend in part on the extent
to which reimbursement for the cost of such products will be available from
government health administration authorities, private health coverage insurers
and other organizations. The Clinton administration has stated that health care
reform is one of its priorities. Any such measures, if adopted, could adversely
affect the pricing of pharmaceutical products or the amount of reimbursement
from governmental agencies or third party payors, and consequently could be
adverse to the Company. The Company cannot predict the outcome of any reform
initiatives or the impact thereof on the Company's financial position. Further,
significant uncertainty exists as to the reimbursement status of newly approved
health care products, and there can be no assurance that adequate third-party
coverage will be available for the Company to maintain price levels sufficient
for realization of an appropriate return on its investment in product
development. See "Business - Government Regulation."
DEPENDENCE UPON KEY PERSONNEL AND ATTRACTION OF QUALIFIED PERSONNEL.
The Company is highly dependent on the services of its President and Chief
Executive Officer, Dr. Vincent D. Romeo. There is no assurance that, if the
Company should lose the services of Dr. Romeo, a qualified replacement could be
engaged. Although the Company has entered into an employment agreement with Dr.
Romeo, the loss of his services could have a material adverse effect on the
Company's business and prospects. Due to the specialized nature of the
Company's business, the Company is also highly dependent upon its ability to
attract and retain qualified scientific, technical and key management
personnel. There is intense competition for qualified personnel in the areas of
the Company's activities and there can be no assurance that the Company will be
able to locate, attract and retain qualified personnel necessary for the
development of its existing business and its expansion into areas and
activities requiring additional expertise, such as clinical testing, government
approvals, production and marketing. The loss of, or failure to recruit
scientific, technical and
11
<PAGE> 15
managerial personnel could have a material adverse effect on the Company. See
"Business - Employees."
PRODUCT LIABILITY EXPOSURE; LIMITED OF INSURANCE COVERAGE. The
testing, marketing and sale of human health care products entail an inherent
risk of allegations of product liability, and there can be no assurance that
substantial product liability claims will not be asserted against the Company.
The Company currently has only limited product liability insurance coverage in
connection with its clinical trials. The Company intends to obtain additional
product liability insurance if and when its products are commercialized and
marketed by the Company; however there can be no assurance that adequate
insurance will be available at acceptable costs, if at all, or that such
insurance will be sufficient to cover all possible liabilities or that a
product liability claim would not materially adversely affect the business or
financial condition of the Company. Failure to maintain adequate product
liability insurance can, in the event a product liability claim were asserted
against the Company, result in the loss of an investor's entire investment.
LIMITED MANUFACTURING, MARKETING AND SALES CAPABILITY. Although the
Company is producing and formulating small amounts of certain drug formulations
which are the subject of preclinical and clinical trials under current good
manufacturing practices ("GMP"), which are stringent manufacturing standards
prescribed by the FDA, the Company has not yet manufactured or marketed any
products in commercial quantities, and the current facilities and equipment of
the Company may not be adequate for commercial scale production under GMP. To
be successful, the Company's proposed products must be manufactured in
commercial quantities under GMP and at acceptable costs. Therefore, the Company
will need to further develop its own GMP manufacturing facility and/or depend
on contract manufacturers, licensees or others for the commercial manufacture
of its products. The Company has no experience in such commercial manufacturing
and no assurance can be given that the Company will be able to make the
transition to commercial production successfully or at an acceptable cost. In
addition, no assurance can be given that the Company will be able to make
arrangements with third parties to manufacture its products on acceptable
terms. See "Business - Manufacturing."
The Company has no experience in marketing, distributing or selling
pharmaceutical products and will have to develop such expertise and/or rely on
licensees or on arrangements with others to provide for the marketing,
distribution and sales of its products. There can be no assurance that the
Company will be able to establish marketing, distribution and sales
capabilities or make arrangements with licensees or others to perform such
activities.
DEPENDENCE ON COLLABORATIVE PARTNERS. Most of the Company's current
revenues are derived from a collaborative agreement with the Bristol-Myers
Squibb Company ("BMS"). The marketing responsibilities pursuant to said
agreement has been undertaken by BMS and is not within the control of the
Company. The agreement with BMS does not provide for minimum royalties, is
subject to cancellation and there is no assurance that the Company will
continue to receive royalty payments in the future or on a consistent basis.
The Company's strategy for research, development and/or
commercialization of some of its products and proposed products, presently and
in the foreseeable future, is to rely upon various strategic agreements with
licensees, distributors and other third parties in performing preclinical and
clinical testing, obtaining regulatory approval, manufacturing and marketing.
There can be no assurance that the Company will be able to negotiate acceptable
collaborative arrangements or that such arrangements will be successful. See
"Business - Collaborative Agreements."
12
<PAGE> 16
INTENSE COMPETITION. The Company is engaged in the pharmaceutical,
drug delivery systems industry which is characterized by extensive research
efforts, rapid technological progress and intense competition. Competitors of
the Company in the United States and abroad are numerous and include, among
others, major pharmaceutical companies, biotechnology firms, universities and
other research institutions. At the present time, the Company does not know of
another pharmaceutical company engaging exclusively in the development of drugs
to be administered nasally for systemic absorption. However, other
pharmaceutical companies which are larger than the Company are known to be
engaged in researching some nasally administered pharmaceuticals, and may be
expected to enter this field if the nasal route ever becomes the method of
choice for the administration of certain classes of drugs.
Further, there can be no assurance that the Company's competitors will
not succeed in developing technologies and products that are more effective
than the nasal technology being developed by the Company or which would render
the Company's technology and products obsolete or noncompetitive. Many of these
competitors have substantially greater financial and technical resources and
production and marketing capabilities than the Company. Many of the Company's
competitors have greater experience than the Company in conducting preclinical
testing and clinical trials of pharmaceutical products and obtaining FDA and
other regulatory approvals. Accordingly, the Company's competitors may succeed
in obtaining FDA approval for products more rapidly than the Company. If the
Company commences commercial sales of its products, it will also be competing
with respect to manufacturing efficiency and marketing capabilities, areas in
which it has limited or no experience. See "Business - Competition."
SUBSTANTIAL AMOUNT OF UNALLOCATED PROCEEDS. Approximately $2,534,125
(33%) of the estimated $7,734,125 of net proceeds from the Offering, assuming
the exercise of all of the Warrants, have been allocated by the Company for
working capital and general corporate purposes. Accordingly, the Company's
management will have broad discretion as to the application of such proceeds.
See "Use of Proceeds."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. Following this
Offering, the Company's directors, executive officers, certain principal
stockholders and their affiliates will own beneficially (assuming the exercise
of existing stock options) approximately 36% of the Company's Common Stock.
Accordingly, such holders, if acting together, may have the ability to exert
significant influence over the election of the Company's Board of Directors and
other matters submitted to the Company's stockholders for approval. The voting
power of these holders may discourage or prevent any proposed change of control
of the Company pursuant to a tender offer or otherwise unless the terms thereof
are approved by such holders. See "Principal Stockholders."
DIVIDENDS UNLIKELY. The Company has neither paid nor declared any
cash or other dividends on its shares of Common Stock since its inception and
management does not presently anticipate that the Board of Directors will
declare dividends on its shares of Common Stock in the foreseeable future.
There can be no assurance that the Company will ever be in a financial position
to pay dividends. Further, an Investment Agreement between the Company and
Basil Properties prohibits the payment of any dividends until the Company's
indebtedness to Basil Properties is satisfied. See "Certain Transactions,"
"Dividend Policy" and "Description of Securities."
AUTHORIZATION OF PREFERRED STOCK; ANTI-TAKEOVER PROVISIONS. The
Company's Certificate of Incorporation authorizes the issuance of up to 100,000
shares of "blank check" preferred stock in amounts and with such designations,
rights and preferences as may be determined from time to time
13
<PAGE> 17
by the Board of Directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect
the voting power or other rights of the holders of the Company's Common Stock.
In the event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. Although the Company has no present intention to issue
any shares of its Preferred Stock, there can be no assurance that the Company
will not do so in the future. In addition, the Company is subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation
Law. In general, the statute prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for
a period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. For purposes of Section 203, a "business combination"
includes mergers, asset sales and similar transactions between the corporation
and the interested stockholder, and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns 15% or more of the corporation's
voting stock or who is an affiliate or associate of the corporation and,
together with his affiliates and associates, has owned 15% or more of the
corporation's voting stock within three years. See "Description of Securities."
ARBITRARY DETERMINATION OF OFFERING PRICE. The Initial Exercise Price
of the Warrants was determined by negotiation between the Company and the
Representative, and does not necessarily bear any relation to the Company's
asset value, net worth, or other established criteria of value. In no event
should the Initial Exercise Price be considered any indication of the future
market price of the Common Stock of the Company.
IMMEDIATE AND SUBSTANTIAL DILUTION. A purchaser of the Common Stock
offered hereby upon the exercise of the Warrants will experience immediate and
substantial dilution of net tangible book value per share (approximately $2.95
per share) because the Initial Exercise Price of the Warrants will exceed the
Company's pro forma net tangible book value per share of Common Stock after
giving effect to the Offering. Investors in this Offering will make
approximately 41% of all contributions to the Company's capital and will own
approximately 32% of the Common Stock . See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE. Of the 3,221,447 shares of Common
Stock outstanding as of the date of this Prospectus, approximately 967,742
shares are "restricted securities" as that term is defined by Rule 144 under
the Securities Act of 1933, as amended, and in the future, may be sold in
compliance with Rule 144. All of the foregoing shares are now eligible to be
sold in compliance with Rule 144. Ordinarily, under Rule 144 a person holding
restricted stock for a period of two years may, every three months, sell in
brokerage transactions an amount equal to the greater of 1% of the Company's
outstanding Common Stock, or, if the Common Stock is quoted on NASDAQ, the
average weekly volume of trading in the Common Stock reported for the preceding
four weeks. After the expiration of three years, stock held by persons not
affiliated with the Company will not be subject to the above limitations.
No prediction can be made as to the effect, if any, that market sales
of shares of Common Stock or the availability of such shares for sale will have
on the market prices prevailing from time to time. Nevertheless, the
possibility that substantial amounts of shares of Common Stock may be sold in
the public market may adversely affect prevailing market prices for the shares
of Common Stock
14
<PAGE> 18
and could impair the Company's ability to raise capital through the sale of its
equity securities. See "Shares Eligible for Future Sale."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED IN
CONNECTION WITH EXERCISE OF WARRANTS. Warrantholders will only be able to
exercise the Warrants if (i) a current prospectus under the 1933 Act relating
to the securities underlying the Warrants is then in effect and (ii) such
securities are qualified for sale or exempt from qualification under the
applicable securities laws of the states in which the various holders of
warrants reside. Although the Company will use its best efforts to maintain the
effectiveness of a current prospectus covering the securities underlying the
Warrants, there can be no assurance that the Company will be able to do so. The
value of the Warrants may be greatly reduced if a current prospectus covering
the securities issuable upon the exercise of the Warrants is not kept effective
or if such securities are not qualified, or exempt from qualification, in the
states in which the holders of Warrants reside. Although the Company may only
redeem the Warrants if a current prospectus is in effect, the Company may
redeem the Warrants even if it is unable to qualify the underlying Common Stock
for sale under all applicable state securities laws. See "Description of
Securities - Warrants."
INDEMNIFICATION OF DIRECTORS UNDER DELAWARE LAW. Pursuant to both the
Company's Certificate of Incorporation and Delaware law the Company's directors
are indemnified by the Company or its stockholders for monetary damages for
breach of fiduciary duty, except for liability which arises in connection with
(i) a breach of duty of loyalty, (ii) acts or omissions not made in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
for dividend payments or stock repurchases illegal under Delaware law, or (iv)
any transaction in which the director derived an improper personal benefit. The
Company's Certificate of Incorporation does not have any effect on the
availability of equitable remedies (such as injunction or rescission) for
breach of fiduciary duty. However, as a practical matter, equitable remedies
may not be available in particular circumstances. See "Management - Director
Liability."
POTENTIAL DILUTIVE EFFECT OF REPRESENTATIVE'S WARRANTS AND POSSIBLE
IMPACT ON FUTURE FINANCINGS; REGISTRATION RIGHTS. Upon completion of its
December, 1993 public offering, the Company sold to the Representative warrants
to purchase up to an aggregate of 67,500 Units, exercisable for a period of
four years commencing December 7, 1994 at an exercise price of $8.25 per Unit
or 110% of the initial offering price per Unit. The holders of the
Representative's Warrants are likely to exercise them when, in all likelihood,
the Company could obtain additional capital on terms more favorable than those
provided by such securities. Further, while such securities are outstanding,
the Company's ability to obtain additional financing on favorable terms may be
adversely affected. In addition, the exercise of such securities would dilute a
prospective investor's investment in the Company. The holders of the
Representative's Warrants will have certain registration rights with respect to
the Warrants and the Units underlying the Warrants which could result in
substantial future expense to the Company and could adversely affect any future
equity or debt financing by the Company.
15
<PAGE> 19
DILUTION
Dilution represents the difference between the public offering price
per share upon exercise of the Warrants and the pro forma net tangible book
value per share of Common Stock after this Offering. Net tangible book value
per share is determined by dividing the net tangible book value of the Common
Stock (total tangible assets less total liabilities) by the number of
outstanding shares of Common Stock.
At September 30, 1995, the net tangible book value of the Company was
$4,310,534 or $1.34 per share of Common Stock. Without taking into account any
changes in net tangible book value after September 30, 1995, other than to give
effect to the issuance of 1,485,000 shares of Common Stock underlying the
Warrants (less warrant solicitation fees and estimated expenses of this
offering and assuming no exercise of the Representative's Warrants), the
adjusted net tangible book value of the Common Stock as of September 30, 1995
would have been $12,044,659 or $2.56 per share, representing an immediate
increase in net tangible book value of $1.22 per share to existing shareholders
and an immediate dilution of $2.94 per share to the purchasers of the Common
Stock offered hereby upon exercise of the Warrants), as illustrated by the
following table:
<TABLE>
<S> <C> <C>
Exercise price per share ..................................... $5.50
----
Net tangible book value per share
of Common Stock before exercise
of Warrants ................................................ $1.34
Increase in net tangible book
value per share attributable to
cash payments for exercise of
1,485,000 Warrants ......................................... 1.22
------
Adjusted net tangible book value
per share after the offering ............................... 2.56
----
Dilution per share to exercising
Warrant holders............................................. $2.94
----
</TABLE>
The following table sets forth on a pro forma basis the differences
between existing shareholders and new investors with respect to the number of
shares of Common Stock purchased from the Company, the total consideration paid
to the Company and the average price paid per share, assuming an Initial
Exercise Price of $5.50 per Warrant:
16
<PAGE> 20
<TABLE>
<CAPTION>
% of Outstanding
Shares % of Total
------------------ Consideration Consideration Average
No. of Shares Paid Paid ----- Price/Share
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Present
Stockholders 3,221,447 68% $11,786,381 59% $3.66
Exercising Warrant
Holders 1,485,000 32% $ 8,167,500 41% $5.50
</TABLE>
USE OF PROCEEDS
The estimated net proceeds of this offering to the Company assuming
the exercise of all of the 1,485,000 Warrants, will be approximately $7,734,125
assuming an Initial Exercise Price of $5.50 per share, and after deducting the
Representative's warrant solicitation fee and other expenses of this offering
estimated at approximately $25,000. If one half of the Warrants are exercised,
the net proceeds will be approximately $3,854,563. The Company currently
intends to utilize the net proceeds of this offering as follows:
<TABLE>
<CAPTION>
Approximate Amount of Net Proceeds
----------------------------------
Intended Application 50% of Warrants Exercised All Warrants Exercised
-------------------- ------------------------- -----------------------
<S> <C> <C>
Research and development (1) $3,000,000 $5,200,000
Working capital and general
corporate purposes $ 854,563 $2,534,125
Total......... $3,854,563 $7,734,125
</TABLE>
- -------------------
(1) Represents costs associated with research and development of the
Company's proposed products, including salaries for scientific
employees, preclinical and clinical tests and compliance with
regulatory requirements.
Pending full utilization of the net proceeds of this offering, the
Company intends to make temporary investments in short-term, interest-bearing
investments, such as U.S. Treasury bills.
The foregoing allocations are estimates only and are subject to
revision from time to time to meet the Company's requirements. If any projected
estimate of expenditures is too low, additional sums may be expected to be
drawn from working capital; conversely, if any projected estimate is too high,
excess amounts are expected to be used as general working capital.
Furthermore, allocations may be changed in response to unanticipated
developments in the Company's business. The Company may re-allocate such
amounts from time to time among the categories shown above or to new categories
if it believes such to be in its best interest. The net proceeds may also be
used to acquire technology, products or companies that complement the business
of the Company, although
17
<PAGE> 21
the Company does not currently have any agreements, commitments or arrangements
with respect to any such acquisition transactions.
DIVIDEND POLICY
The Company has not, to date, paid nor declared any cash or other
dividends on its shares of Common Stock since its inception. The Company has no
current plans to pay dividends on its Common Stock and intends to retain
earnings, if any, for working capital purposes. Further, an Investment
Agreement between the Company and Basil Properties prohibits the payment of any
dividends until the Company's indebtedness to Basil Properties (approximately
$300,000 as of September 30, 1995) is satisfied. See "Certain Transactions."
Any future determination as to the payment of dividends on the Common Stock
will depend upon the results of operations, capital requirements, the financial
condition of the Company and other relevant factors.
18
<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1995, and as adjusted to give effect to the issuance by the
Company of 1,485,000 shares pursuant to the Offering and the receipt of the
estimated net proceeds thereof. This table should be read in conjunction with
the financial statements of the Company and the notes thereto appearing
elsewhere in this Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
Actual As Adjusted
------ -----------
<S> <C> <C>
Long-term debt, less current portion (1) $ 174,894 $ 174,894
------- -------
Stockholders' equity:
Preferred stock, $.01 par value per share.
Authorized 100,000 shares, issued and
outstanding, none;
Common stock, $.006 par value per
share. Authorized 6,000,000 shares,
issued and outstanding, 3,221,447
shares and 4,706,447 shares as
adjusted (2) $ 19,329 $ 28,239
Additional paid-in capital $10,575,159 $18,300,374
Accumulated deficit $(6,283,954) $(6,283,954)
----------- -----------
Total stockholders' equity $ 4,310,534 $12,044,659
---------- ----------
Total capitalization $ 4,485,428 $12,219,553
========= ==========
</TABLE>
- -----------------------
(1) Subject to debt restructure agreement with Basil Properties. See "Certain
Transactions."
(2) Does not include 483,333 shares reserved for issuance pursuant to the
Company's 1990 Stock Option Plan of which options for 214,749 shares have
been granted, or the shares issuable upon exercise of (i) the
Representative's Warrants, and (ii) the Warrants included in the Units
issuable upon the exercise of the Representative's Warrants.
19
<PAGE> 23
PRICE RANGE OF COMMON STOCK
Since December 7, 1993, the Company's Common Stock has been trading on
the Nasdaq Small-Cap Market under the symbol NSTK. Prior to that time the
Company's Common Stock was traded in the over-the counter market. The following
table sets forth the range of high and low closing bid prices for the Company's
Common Stock as reported by the Nasdaq Stock Market for the last two fiscal
years. These quotations represent inter-dealer prices, without adjustment for
retail mark-ups, mark-downs or commissions and do not necessarily represent
actual transactions:
<TABLE>
<CAPTION>
Fiscal Years Bid Price
- ------------ ---------
Low High
--- ----
<S> <C> <C>
1996:
- -----
Second Quarter through
December 22, 1995 $7.37 $9.50
First Quarter $6.87 $7.50
1995:
- -----
Fourth Quarter $4.87 $7.75
Third Quarter $4.75 $5.75
Second Quarter $4.50 $5.75
First Quarter $3.12 $5.62
1994:
- -----
Fourth Quarter $3.00 $4.25
Third Quarter $3.62 $4.37
Second Quarter $2.25 $4.25
First Quarter $1.87 $4.12
</TABLE>
On December 22, 1995, the closing bid and asked price quotations for
the Company's Common Stock were $9.50 and $9.87, respectively. The Company
believes that its Common Stock is held of record by approximately 17,000
persons, including several brokerage firms holding shares in street name for
beneficial owners.
20
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. This discussion
should be read in conjunction with the financial statements and notes thereto
included elsewhere herein. See also "Business."
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1994
During the three months ended September 30, 1995, the Company
continued to conduct the pharmaceutical and pharmacological research and/or
assemble the technical and reference data required to gain marketing approval
from the appropriate regulatory agencies for four new drug products. The
Company conducted bioavailability and toxicity studies in animals with respect
to its nasal formulation of doxylamine succinate. The company also has been
generating preclinical data in preparation for the submission of an IND for its
nasal formulation of chlorpheniramine maleate.
In the three months ended September 30, 1995, the Company has expended
$283,259 for its preclinical and clinical research and development. This
compares with $139,982 expended in the corresponding prior year period. This
increase in research and development activity reflects the Company's commitment
to accelerate its efforts to develop its nasal pharmaceutical formulations and
should be expected to continue.
Proceeds from the sale of the Company's research, and licensing of its
proprietary technology, have significantly increased in the last fiscal year
compared to the prior year. Revenue of $818,459 was earned by the Company in
the current three month period as a result of licensing, royalty and research
income. This revenue level reflects a 25.1% increase from revenues of $654,188
in the corresponding prior year period. Interest income earned in the three
months ended September 30, 1995 was $63,501, compared to $54,048 earned in the
three months ended September 30, 1994. The increase is attributable to changes
interest rates and amounts of excess funds invested. Total revenue was
$881,510 and $708,236 for the three months ended September 30, 1995 and 1994,
respectively.
The Company earned revenues of $795,000 from royalties received from
the Bristol-Myers Squibb Company ("BMS") for the three months ended September
30, 1995 ($594,000 in the corresponding period in fiscal 1995) pursuant to a
sublicense agreement (the "BMS Agreement") for a nasal formulation of
butorphanol tartrate, a narcotic analgesic. BMS received marketing approval
from the FDA for butorphanol tartrate, which it markets as Stadol(R) NS(TM), in
December, 1991. Management anticipates that a significant portion of its
revenues for the current fiscal year and some additional periods will be
derived from expected royalties from the BMS Agreement. Royalties from the BMS
Agreement commenced in the quarter ended December 31, 1992 and have increased
since that time based upon sales by BMS of Stadol(R) NS(TM). However, there is
no assurance that such sales will continue to increase or be maintained and
therefore, there is no assurance of any future minimum royalties.
21
<PAGE> 25
The Company recognized no earnings from the continued marketing of the
Company's non-prescription vitamin B-12 nasal gel by Nature's Bounty, Inc.
("NB"). This compares to revenues of $35,000 earned from this product in the
corresponding period of the prior fiscal year. In a regulatory letter dated
February 26, 1987, the FDA advised NB of the FDA's position that the
non-prescription nasal vitamin B-12 dietary supplement is a "new drug",
requiring approval of an NDA for marketing. The FDA requested that NB
discontinue marketing of the product and commenced litigation. In March, 1995,
the United States District Court for the Eastern District of New York ruled
that NB is permanently enjoined from introducing or delivering for introduction
into interstate commerce the vitamin B12 nasal dietary supplement unless there
is in effect an NDA that has been reviewed and approved by the FDA. As a result
of the foregoing litigation, NB has stopped remitting royalty payments to the
Company and the Company does not expect any future royalties. As the Company
has not received any royalties from NB in the three months ended September 30,
1995, the current earnings have been significantly reduced. However, the
discontinuance of the related royalties has not had a material adverse impact
on capital resources or liquidity.
Royalties expense increased in the three months ended September 30,
1995 to $391,191 from $296,969 in the corresponding period in fiscal 1995 as
the royalties received from BMS are also subject to a separate license
agreement between the Company and a third party. As a result, royalties
expense in connection with Stadol(R) NS(TM) will increase approximately in
proportion to royalty income. General and administrative expenses also
increased in the current three month period to $168,602 as compared to $158,731
in the corresponding period of the prior fiscal year. This increase is
attributable to increased staffing; costs associated with the Company's move to
larger and more modern laboratory, manufacturing and office facilities; and
consulting expenses relating to strategic planning.
As a result of the availability of funds provided by increased revenue
as well as the liquidity provided by the December 1993 public offering, the
company has budgeted an increase in its research and development efforts and
related general and administrative support. It is anticipated that as
expenditures for research and development and supporting functions increase,
the Company's net income will be negatively affected.
FISCAL YEARS ENDED JUNE 30, 1995 COMPARED WITH PRIOR FISCAL YEAR
The Company has expended $882,356 for its preclinical and clinical
research and development for this past fiscal year. This compares with $504,140
expended in the prior fiscal year. This increase in research and development
activity reflects the Company's commitment to accelerate its efforts to develop
its nasal pharmaceutical formulations and should be expected to continue.
Proceeds from the sale of the Company's research, and licensing of
its proprietary technology, have significantly increased in the last fiscal
year compared to the prior year. Revenue of $2,683,925 was earned by the
Company in the last fiscal year as a result of licensing, royalty and research
income. This revenue level reflects a 27.4% increase from revenues of
$2,106,662 in the prior fiscal year. Interest income earned in fiscal 1995 was
$253,858, compared to $95,583 earned in the prior fiscal year. The increase
is attributable to the fact that funds from the Company's 1993 public offering
were invested for a full fiscal year as of June 30, 1995, compared with a
partial period in the prior year. Total revenue was $2,937,783 and $2,200,245
for fiscal years ended June 30, 1995 and 1994, respectively.
22
<PAGE> 26
The Company earned revenues of $2,530,000 from royalties received from
BMS for the year ended June 30, 1995 ($1,901,000 in fiscal 1994) pursuant to
the BMS Agreement.
The Company also earned $116,000 from the continued marketing of the
Company's non-prescription vitamin B-12 nasal gel by NB. This compares to
revenues of $144,000 earned from this product in the prior fiscal year.
Royalties expense increased in fiscal 1995 to $1,250,789 from
$1,041,703 in fiscal 1994 as the royalties received from BMS are also subject
to a separate license agreement between the Company and a third party. As a
result, royalties expense in connection with Stadol(R) NS(TM) will increase in
proportion to royalty income.
General and administrative expenses also increased in the last fiscal
year to $836,549 as compared to $388,898 in the prior fiscal year. This
increase is attributable to increased staffing; costs associated with the
Company's move to larger and more modern laboratory, manufacturing and office
facilities; and consulting expenses relating to strategic planning.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1995, the Company had cash and cash equivalents of
$706,276 as compared to $819,985 at June 30, 1995. The Company also had
short-term investments of $4,196,210 at September 30, 1995, (compared with
$4,198,869 at June 30, 1995). The combined cash and short-term investments
primarily consisted of the net proceeds of the Company's December, 1993 public
offering. In addition, the Company had royalties receivable of $814,877 at
September 30, 1995 compared to $759,349 at June 30, 1995. The royalties
receivable are principally royalty income from the BMS Agreement.
As of September 30, 1995, the Company had working capital of
$4,224,531. Management believes that the Company has adequate resources to
meet expected needs and to fund its anticipated research and development
efforts for the next eighteen months. The Company has been able to maintain
its operations and its continued liquidity is dependent on its ability to
control its operating costs and the receipt of revenue from Bristol-Myers
Squibb Company as set forth above.
23
<PAGE> 27
BUSINESS
GENERAL
Nastech Pharmaceutical Company Inc. (the "Company") was originally
incorporated under the laws of the State of New York on March 3, 1983 and was
reincorporated in the State of Delaware on September 23, 1983.
The Company is engaged in research and clinical testing activities in
an effort to develop nasally administered forms of pharmaceuticals that are
currently available in oral, injectable or other dosage forms. The Company
believes that advantages associated with the nasal delivery of certain
pharmaceuticals include rapid systemic absorption, lower required dosages and
quicker onset of desired effect. Nasal delivery may also allow for the systemic
administration of drugs that cannot be administered by the oral route due to
significant liver and/or gastrointestinal metabolism, thereby allowing for a
broader based use of products that are currently restricted in application
because of the limitations of injectable therapy. In addition, nasal delivery
may afford a cost effective alternative to the injectable delivery form for
some pharmaceuticals. Potential side effects, including the possibility of
nasal irritation have to be studied on a drug by drug basis.
Prior to the marketing of any nasally administered form of
pharmaceutical agent in the United States, FDA approval must be obtained. A
research and development program is currently in progress with respect to four
pharmaceuticals for which the Company has patent rights for nasal
administration.
PRODUCT DEVELOPMENT
Traditionally, evaluation of any new pharmacologically active chemical
begins with extensive bioavailability and toxicity testing in animals. The
initial phase of testing is performed with the purpose of determining systemic
absorption levels of the pharmaceutical and the possibility of toxicity. If the
tests are successful, the results are compiled and a Notice of Claimed
Investigational Exemption for a New Drug ("IND") is submitted to the FDA. If a
"clinical hold" is not issued by the FDA within 30 days of the submission, the
applicant may begin human clinical studies at approved institutions.
There are three phases of human studies, all of which are designed to
determine the safety and efficacy of the product under evaluation. The FDA must
approve the results of each phase, all of which are included in a New Drug
Application ("NDA"). If the NDA is approved, the applicant will be permitted to
manufacture and market the product commercially. After marketing permission is
granted, the applicant has a continuing obligation to supplement the NDA with
new data discovered with respect to the product.
All of the pharmaceutical products currently being considered by the
Company for nasal delivery are commercially available and have received prior
FDA marketing approval in non-nasal dosage forms. Consequently, preliminary
testing by the Company is designed only to determine the suitability of the
drug for nasal delivery.
The Company has filed six INDs for nasally delivered pharmaceutical
agents: vitamin B-12; progesterone (a female hormone); meclizine hydrochloride
(antiemetic - antinauseant);
24
<PAGE> 28
metoclopramide hydrochloride (antiemetic - antinauseant); propranolol
hydrochloride (beta blocker) and doxylamine succinate
(antihistamine/sleep-aid). The further development and marketing of
metoclopramide hydrochloride and propranolol hydrochloride are subject to
collaborative agreements between the Company and RiboGene, Inc.
In the last fiscal year the Company utilized outside product
development and marketing consultants to assist management in conducting an
extensive analysis of the Company's intellectual property for the purpose of
prioritizing its research and development efforts. As a result of this
analysis, the Company anticipates that its research and development efforts for
the balance of the current fiscal year will include the following
pharmaceutical agents: doxylamine succinate, chlorpheniramine maleate and
buprenorphine hydrochloride.
The status of the Company's current research and development
activities is as follows:
VITAMIN B-12 - Vitamin B-12, traditionally administered by injection,
is used to treat vitamin B-12 deficiency anemia including pernicious anemia
("PA"). Phase III clinical trials with respect to a therapeutic, prescription
strength (500 mcg) vitamin B-12 nasal gel have been performed and the Company
has submitted an NDA with respect to same, which was accepted for filing in
February 1989. See "Business - Government Regulation." After a conference with
the FDA in January 1991, the Company agreed to conduct an additional clinical
study as requested by the FDA. The additional study was commenced in October
1991 and completed in March 1993. In August 1993 the clinical data was
officially submitted to the FDA in support of the Company's application for
marketing approval for the therapeutic strength vitamin B-12 nasal gel. The
FDA, in a letter dated July 21, 1994, notified the Company that the NDA was not
approvable at that time due to questions concerning systemic bioavailability
and reproducibility of drug delivery via the unit dose nasal applicator tube
used by the Company at the time. The Company has recently completed an
additional clinical study evaluating a new metered multiple dose gel pump for
the delivery of the vitamin B-12 nasal gel and anticipates filing a further
amendment to its NDA to address the foregoing issues. Approval by the FDA of
the Company's therapeutic, nasal vitamin B-12 NDA and other new drug products
being developed by the Company cannot be predicted with any certainty and no
assurance can be given that marketing approval will be granted by the FDA.
DOXYLAMINE SUCCINATE - Doxylamine succinate is an ethanolamine
derivative antihistamine used as a nighttime sleep aid in the short-term
management of insomnia. In the past year a pre-clinical pharmacokinetic and
toxicity study was conducted in animals. The drug demonstrated higher systemic
absorption following nasal versus oral administration with no evidence of local
nasal toxicity. The results of the pre-clinical studies and additional support
documentation were compiled and submitted with the Company's IND to the FDA.
There can be no assurance that these results will be similar in Phase I
clinical trials.
CHLORPHENIRAMINE MALEATE - Chlorpheniramine Maleate is an
antihistamine indicated for the relief of symptoms associated with hay fever
and upper respiratory allergies (allergic rhinitis). The Company has continued
its research program to begin generating the necessary information and
preclinical data for the filing of an IND for the nasal delivery of
chlorpheniramine maleate. A pilot bioavailability study of nasal
chlorpheniramine maleate in animal models demonstrated higher systemic
absorption of the drug following nasal versus oral administration. The Company
is presently preparing to conduct a full pre-clinical investigation to allow
for the submission of an IND with the FDA. There can be no assurance that these
results will be similar in Phase I clinical trials.
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<PAGE> 29
BUPRENORPHINE HYDROCHORIDE - Buprenorphine hydrochloride is a narcotic
agonist-antagonist analgesic indicated for the relief of moderate to severe
pain. The only currently approved method for administering buprenorphine is by
injection. In 1995, the Company continued formulation work in anticipation of
a pre-clinical research program to generate the required data for filing an IND
for the nasal delivery of this pharmaceutical agent.
COLLABORATIVE AGREEMENTS
The Company's product development strategy has been to focus its
attention and limited resources in a manner that will minimize the risk, time
and cost typically associated with commercializing a family of pharmaceuticals.
The Company has no experience in marketing, distributing or selling
pharmaceutical products and accordingly will have to develop an adequate sales
force and/or rely on its collaborators, licensees or on arrangements with
others to provide for the marketing, distribution and sales of its products.
The Company plans to independently develop and market certain nasal
drug products, such as certain prescription products for which there are a
relatively limited number of physicians specializing in the treatment of a
disease which can be treated by utilizing one of the Company's products. Other
nasal pharmaceuticals, such as some of the Company's proposed over-the-counter
products may lend themselves to development and marketing in conjunction with
established pharmaceutical companies that can provide the financial means,
marketing and distribution systems to successfully commercialize such a new
nasal pharmaceutical product. The Company also plans to evaluate collaboration
with commercial partners for distribution and marketing of its products in
international markets.
The Company has entered into collaborative agreements with the
following third parties:
BRISTOL-MYERS SQUIBB COMPANY - On January 1, 1986, the Company
sublicensed to Bristol-Myers Squibb Company ("BMS") its development and
commercial exploitation rights with respect to its licensed patent rights for
the nasal delivery of butorphanol tartrate, in exchange for which BMS agreed to
pay the Company a royalty based on the net sales of such product (the "BMS
Agreement"). BMS has paid the Company an initial licensing fee of $350,000,
which was deducted from royalty payments. The BMS Agreement, which may be
terminated by BMS at any time upon 60 days written notice to the Company, is
coextensive with the Company's licensed patent rights to nasal butorphanol
tartrate. The nasal butorphanol tartrate patent expires in the year 2001 in the
United States, subject to any right of extension or renewal. In December 1991,
the FDA granted marketing approval to BMS for this product and quarterly
royalty payments to the Company by BMS are continuing.
THE DUPONT MERCK PHARMACEUTICAL COMPANY - On June 30, 1994, the
Company sublicensed to The DuPont Merck Pharmaceutical Company ("DuPont Merck")
its development and commercial exploitation rights with respect to its licensed
patent rights for the nasal delivery of nalbuphine hydrochloride, in exchange
for which DuPont Merck agreed to pay the Company a royalty based on the net
sales of such product (the "DuPont Merck Agreement"). Nalbuphine hydrochloride
is a synthetic analgesic agent indicated for the relief of moderate to severe
pain. The DuPont Merck Agreement is limited to the countries of Canada and
Mexico and is coextensive with the Company's licensed patent rights to nasal
nalbuphine hydrochloride in those countries. The nasal nalbuphine hydrochloride
patent expires in the year 2001 in Canada, subject to any right of extension or
renewal. The Mexican patent for nasal nalbuphine hydrochloride is currently
pending. The DuPont
26
<PAGE> 30
Merck Agreement may be terminated by DuPont Merck at any time upon 60 days
written notice to the Company.
RIBOGENE, INC. ("RiboGene," as successor in interest to Rugby
Laboratories Co., Inc., and Darby Pharmaceuticals. Inc.) - On June 26, 1987,
the Company entered into a license agreement with Rugby Laboratories Co., Inc.
("Rugby") and its affiliate Darby Pharmaceuticals, Inc. ("Darby") whereby Rugby
was appointed as the Company's sole and exclusive worldwide licensee for the
manufacture, distribution and marketing of the nasal dosage form of propranolol
hydrochloride for the life of the Company's United States patent covering the
nasal route of administration for that drug (the "Propranolol Agreement"). The
Company received $350,000 upon execution of the Propranolol Agreement and, if
and when nasal propranolol hydrochloride is approved for marketing and
commercialized, will receive royalties based upon net sales of the product. In
addition, RiboGene is obligated to pay all patent maintenance fees with respect
to nasal propranolol hydrochloride and pay certain other fees thereunder.
In March 1990, the Company entered into an agreement with Rugby
whereby Rugby purchased the Company's metoclopramide hydrochloride patent and
certain proprietary research information related thereto (the "Metoclopramide
Agreement"). The Metoclopramide Agreement also provided for the termination of
a previous contract between the parties concerning this product. The aggregate
purchase price for the patent, proprietary information and contract termination
was approximately $700,000. The Metoclopramide Agreement also provides for
certain royalties and other fees to the Company if and when nasal
metoclopramide hydrochloride is approved for marketing and commercialized.
In January, 1994, RiboGene acquired certain assets of Darby,
including all rights to the Propranolol Agreement and the Metoclopramide
Agreement. In December, 1994, the Company and RiboGene amended the Propranolol
Agreement and the Metoclopramide Agreement whereby the Company waived its
option to repurchase the exclusive rights to nasal propranolol hydrochloride
and metoclopramide hydrochloride in consideration of a three year right of
first refusal to perform dosage-form development work for both projects. The
amended Metoclopramide Agreement also provided for an increased royalty rate
and certain minimum royalties commencing in 1998.
PATENTS AND PROPRIETARY RIGHTS
The establishment of a strong proprietary position is an important
element of the Company's strategy as the pharmaceuticals to which the Company
has proprietary rights for nasal delivery have been commercially available in
traditional oral and/or injectable forms for many years and have been approved
for use by those delivery methods by the FDA.
On June 1, 1983, the Company entered into a license agreement with the
University of Kentucky Research Foundation ("UKRF") and Dr. Anwar Hussain (the
"UKRF Agreement"), pursuant to which the Company obtained an exclusive
worldwide (except for the middle east region) license for the development and
commercial exploitation of certain patents, patent applications and related
know-how (collectively the "UKRF Information") pertaining to the nasal delivery
of the following drugs:
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<PAGE> 31
Narcotic Antagonists and Analgesics: naloxone, naltrexone,
diprenorphine, nalmexone, cyprenorphine, alazocine, oxilorphan, cyclorphan,
morphine, metopon, desomorphine, dihydromorphine, hydromorphone,
3-hydroxy-N-methylmorphinan, levophenacylmorphan, metazocine, norlevorphanol,
phenomorphan, levorphanol, oxymorphone, buprenorphine, butorphanol,
cyclazocine, phenazocine, pentazocine, nalorphine, levallorphan, nalbuphine.
Beta Blockers: propranolol.
Natural Female Sex Hormones: 17 beta-estradiol and progesterone.
The UKRF Agreement will terminate upon the expiration date of the
latest patent included in the UKRF Information. UKRF United States patents
expire between 1998 and 2001.
The UKRF Agreement requires the Company to pay UKRF the greater of (i)
the minimum annual royalties set forth below, or (ii) royalties based on a
percentage of sales of any product utilizing the UKRF Information (collectively
"UKRF Products"). If the UKRF Product is covered by a patent, royalties are
based on a schedule ranging between 4% and 5% of aggregate net sales. Minimum
royalties are payable commencing one year after FDA approval of an NDA with
respect to a UKRF Product and are $100,000 per year. If the UKRF Product, or
any portion thereof, is not covered by a patent, the Company is required to pay
UKRF one-Half of the greater of the aforementioned minimum annual royalty or
percentage royalty, whichever shall be applicable.
The UKRF Agreement accords the Company the right to grant sublicenses
for UKRF Products. In such event, the royalties payable to UKRF for domestic
and foreign sales thereof will be limited to 50% and 20%, respectively, of
revenues received by the Company therefrom. The Company has granted three
sublicenses to date.
The Company pursues a general policy of obtaining patent protection in
both the United States and selected foreign jurisdictions for patentable
subject matter. In 1986 and 1988, United States patents were issued to the
Company describing and claiming nasal delivery of a variety of antihistamine,
anti-nausea and anti-emetic pharmaceutical agents including meclizine and
metoclopramide; as well as nasal compositions containing vitamin B-12 and
caffeine. Corresponding or related patent applications for most of these
pharmaceutical agents were filed in several foreign countries.
United States patents, which expire between 2003 and 2005 have been
issued to the Company for the nasal delivery of the following pharmaceutical
agents:
Antihistamines and/or anti-nausea/anti-emetics:
metoclopramide, diphenhydramine, clemastine, dimenhydrinate,
doxylamine, carbinoxamine, phenyltoloxamine, tripelennamine,
pyrilamine, brompheniramine, pheniramine, chlorpheniramine,
dexchlorpheniramine, triprolidine, promethazine, trimeprazine,
propiomazine, methdilazine, cyproheptadine, azatadine, methapyrilene,
diphenylpyraline, phenindamine, hydroxyzine, terfenadine, cimetidine,
ranitidine, cyclizine, chlorcyclizine, meclizine, buclizine,
trimethobenzamide, benzquinamide.
Vitamin: Vitamin B-12.
Stimulant: Caffeine.
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<PAGE> 32
At present, in addition to the patented drugs licensed from the UKRF,
the Company has five issued United States patents and corresponding or related
foreign patents and applications pending, related to the nasal administration
of various therapeutic agents. All of the Company's patent applications are
directed to compositions for delivering the therapeutic agents by the nasal
route and/or to the use of such compositions for nasal delivery.
The Company can make no assurances that any issued patent, whether
domestic or foreign, will provide commercially significant patent protection.
Further, patent positions of pharmaceutical and biotechnology companies are
highly uncertain and involve complex legal and factual issues. Therefore,
although the Company believes its patents are valid, it cannot predict with any
precision the scope or enforceability of the claims allowed thereunder. In
addition, there can be no assurance that the Company's patent applications will
result in issued patents, that issued patents will provide an adequate measure
of protection against competitive technology which could circumvent such
patents or that issued patents would withstand review and be held valid by a
court of competent jurisdiction. Furthermore, there can be no assurance that
any issued patents will not be infringed or otherwise circumvented by others or
that the Company will be able to fund the cost of litigation against such
parties.
The Company depends upon the knowledge, experience and skills of its
key scientific and technical personnel. To protect its rights to its
proprietary information, the Company requires all employees, consultants,
advisors and others to enter into confidentiality agreements which prohibit the
disclosure of confidential information to third parties and require disclosure
and assignment to the Company of developments, inventions and discoveries.
There can be no assurance that these agreements will effectively prevent the
unauthorized use or disclosure of the Company's confidential information.
MANUFACTURING
The Company has established internal manufacturing capabilities for
clinical trials and small commercial quantities of its products. All of the
Company's products for clinical and commercial use must be produced under
controlled conditions and under current FDA Good Manufacturing Practices
("GMP"). In August 1995, the Company completed moving its executive offices,
laboratory and manufacturing facilities to a larger, more efficient and modern
facility. The Company's laboratory and manufacturing facilities are
registered to operate by both the FDA and the New York State Board of Pharmacy
thereby enabling the Company to manufacture and test its own pharmaceutical
products. In order to insure continued compliance with GMP requirements, the
Company is required to maintain sufficient technical staff to oversee all
production operations, including quality control, quality assurance, technical
support and manufacturing management. Manufacturing facilities and laboratories
are subject to biennial inspections by the FDA.
In connection with collaborative agreements and if contract
manufacturing arrangements are established with third parties, the Company will
depend upon third parties to produce and deliver products in accordance with
GMP. There can be no assurance that such parties will perform their obligations
in a timely fashion and any failures by such third parties could cause a delay
in clinical trials, commercialization of product, or ability to supply the
market. See "Risk Factors - Manufacturing."
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<PAGE> 33
GOVERNMENT REGULATION
The Company's research and development activities are, and its future
business will be, subject to significant regulation by numerous governmental
authorities in the United States and other countries. Pharmaceutical products
intended for therapeutic use in humans are governed by FDA regulations in the
United States and by comparable regulations in foreign countries. The process
of completing clinical testing and obtaining FDA approval for a new drug
product requires a number of years and the expenditure of substantial
resources. See "Risk Factors - Government Regulation."
Following initial formulation, the steps required before any new
pharmaceutical product may be marketed in the United States include (i)
preclinical laboratory and animal tests, (ii) the submission to the FDA of an
IND application, (iii) adequate and well-controlled clinical trials to
establish the safety and efficacy of the drug, (iv) the submission of an NDA to
the FDA, and (v) FDA approval of the NDA prior to any commercial sale or
shipment of the drug.
Typically, preclinical studies are conducted in the laboratory and in
animal model systems to gain preliminary information on the drugs
bioavailability or efficacy and to identify any significant safety problems.
The results of these studies are submitted to the FDA as part of the IND
application. Testing in humans may commence 30 days after filing of the IND
unless the FDA objects and issues a "clinical hold". A three phase clinical
program is usually required for FDA approval of a pharmaceutical product. Phase
I clinical trials are conducted to determine the safety and optimal dosage of
the product in normal volunteers who do not have the disease or condition that
the proposed drug is designed to treat. Phase I studies are conducted at
approved institutions at which the absorption and excretion (pharmacokinetics)
of the drug as well as any side effects are closely monitored.
If the Phase I testing data is positive and there are no adverse
reactions, a Phase II clinical trial is conducted to gain preliminary evidence
as to the safety and efficacy of the product in a selected patient population.
A Phase III clinical trial is conducted on a more complex patient population
including patients with multiple disease states and taking one or more
medications to provide sufficient data for the statistical proof of safety and
efficacy. Phase II and III studies are usually multi-center trials in order to
achieve greater statistical validity. A clinical trial may combine the elements
of more than one phase. Upon completion of clinical testing which demonstrates
that the product is safe and effective for a specific indication, an NDA may be
filed with the FDA. This application includes details of the testing processes,
preclinical studies, clinical trials, as well as chemical, analytical,
manufacturing, packaging and labeling information. FDA approval of the
application is required before the applicant may market the new drug product.
Even after initial FDA approval has been obtained, the NDA must be
supplemented with any new data subsequently obtained with respect to the drug's
safety and efficacy. Further studies may be required to provide additional data
on safety or to gain approval for the use of a product as a treatment in
clinical indications other than those for which the product was initially
tested. The FDA may also require post-marketing testing and surveillance
programs or Phase IV post-approval trials to monitor the drugs effects. Side
effects resulting from the use of pharmaceutical products may prevent or limit
the further marketing of products.
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<PAGE> 34
In addition to regulations enforced by the FDA, the Company is subject
to regulations under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other similar federal, state and local regulations governing
permissible laboratory activities, waste disposal and other matters.
The Company's ability to successfully commercialize its proposed drug
products will also depend in part on the extent to which reimbursement for the
cost of such products and related treatment will be available from government
health administration authorities, private health coverage insurers, and other
organizations. Significant uncertainty exists as to the reimbursement status of
newly approved health care products, and there can be no assurance that
adequate third-party coverage will be available for the Company to maintain
price levels sufficient for realization of an appropriate return on its
investment in product development. See "Risk Factors - Health Care
Reimbursement."
For marketing outside of the United States, the Company will be
subject to foreign regulatory requirements governing human clinical trials and
marketing approval for drugs. The requirements relating to the conduct of
clinical trials, product licensing, pricing and reimbursement vary widely from
country to country.
COMPETITION
The Company is engaged in the pharmaceutical, drug delivery systems
industry which is characterized by extensive research efforts, rapid
technological progress and intense competition. Competitors of the Company in
the United States and abroad are numerous and include, among others, major
pharmaceutical companies, biotechnology firms, universities and other research
institutions. At the present time, the Company does not know of another
pharmaceutical company engaging exclusively in the development of drugs
intended for nasal administration, but other pharmaceutical companies which are
larger than the Company are known to be engaged in researching some nasally
administered pharmaceuticals, and may be expected to enter this field if the
nasal route ever becomes the method of choice for the administration of certain
classes of drugs.
Further, there can be no assurance that the Company's competitors will
not succeed in developing technologies and products that are more effective
than the nasal technology being developed by the Company or which would render
the Company's technology and products obsolete or noncompetitive. Many of these
competitors have substantially greater financial and technical resources and
production and marketing capabilities than the Company. Many of the Company's
competitors have greater experience than the Company in conducting preclinical
testing and clinical trials of pharmaceutical products and obtaining FDA and
other regulatory approvals. Accordingly, the Company's competitors may succeed
in obtaining FDA approval for products more rapidly than the Company. If the
Company commences commercial sales of its products, it will also be competing
with respect to manufacturing efficiency and marketing capabilities, areas in
which it has limited or no experience.
The Company believes that direct competition with its patented nasal
delivery products may be difficult because of the Company's patent position.
However, the Company's products must also compete with other modalities of drug
delivery and administration including, but not limited to, such promising
technologies and methods as controlled release, target organ or site release,
pumps, polymers, microemulsion, monoclonal antibodies, inhalation, ocular,
liposomal, implants, transdermal passive and transdermal electrotransport.
Other products using these or other delivery
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<PAGE> 35
alternatives may be developed that will be as or more effective than the
Company's products and proposed products. There can be no assurance that the
Company will be able to compete effectively with other commercially available
products or that development of other technologies of methods of drug delivery
will not detrimentally affect the Company's commercial opportunities. See "Risk
Factors - Intense Competition."
EMPLOYEES
At September 30, 1995, the Company had 13 full time employees, of whom
7 were engaged in research and development, including the Company's President
and Vice President of Research and Development both of whom hold Ph.D. degrees
in pharmaceutical sciences, as well as the Company's Medical Director who is a
physician. The balance of the Company's employees are engaged in administration
and support functions.
None of the Company's employees are covered by a collective bargaining
agreement or are represented by a labor union. The Company considers its
relationship with its employees to be satisfactory.
The development, manufacture and marketing of the Company's products
requires substantial scientific and technical capabilities in several disparate
disciplines, including but not limited to biochemistry, analytical chemistry,
pharmacology, therapeutics, toxicology, pharmacy and statistics. While the
Company believes that the capability and experience of its technical employees
compares favorably with the industry as a whole, there can be no assurance that
it can retain existing employees or attract and hire the highly capable
technical and scientific employees it may need in the future on terms deemed
favorable to the Company, if at all. See "Risk Factors - Dependence Upon Key
Personnel and Attraction of Qualified Personnel."
PROPERTIES AND FACILITIES
The Company leases approximately 10,000 square feet at 45 Davids
Drive, Hauppauge, New York for its laboratory, manufacturing facility as well
as its corporate and administrative offices. The lease provides for minimum
annual rent of approximately $82,000 and expires in May, 2000 with the Company
having an option to renew for an additional five year term. The Company is also
responsible for all utilities, maintenance, security and property tax
increases. The Company believes this facility in its present condition is
suitable for its operations for the initial term of the lease.
LEGAL PROCEEDINGS
The Company knows of no litigation or proceeding, pending or
threatened, to which the Company is or may become a party.
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MANAGEMENT
DIRECTORS AND OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- ---- --------
<S> <C> <C>
Devin N. Wenig 29 Chairman
Dr. Vincent D. Romeo 39 President and Chief
Executive Officer
Joel Girsky 56 Director, Secretary, Treasurer
Dr. Ralph Jacobsen 63 Director
Bruce R. Thaw 42 Director
Alvin Katz 65 Director
John V. Pollock 57 Director
Dr. Ian R. Ferrier 52 Director
</TABLE>
All directors hold office until the next annual meeting of
shareholders or until their successors are elected and qualify. Executive
officers hold office until their successors are chosen and qualify, subject to
earlier removal by the Board of Directors.
Set forth below is a biographical description of each director and
executive officer of the Company based on information supplied by each of them.
Devin N. Wenig was appointed Chairman of the Company's Board of
Directors in June 1991. Mr. Wenig received a B.A. degree from Union College and
a J.D. degree from the Columbia University School of Law. From May 1991 to May
1994 Mr. Wenig was a corporate associate with the firm of Cravath, Swaine and
Moore. Mr. Wenig is currently a practicing corporate attorney in New York City,
New York.
Dr. Vincent D. Romeo has been employed by the Company since 1985 as
Director of Research and was appointed President and Chief Executive Officer of
the Company in August 1991. Dr. Romeo is a registered pharmacist and received a
Ph.D. degree from St. John's University College of Pharmacy in Pharmaceutical
Sciences in 1984, with a specialty in pharmacology. He continues at St. John's
as an Adjunct Professor of Pharmacology, Graduate Division, College of Pharmacy
and Allied Health Professions. Dr. Romeo has devoted a significant amount of
his time with the Company formulating drugs for nasal delivery, developing
animal models for nasal drug testing, and designing clinical efficacy and
safety studies. He has authored and co-authored several published articles in
the field. Dr. Romeo has also presented his work at various meetings and
conferences
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<PAGE> 37
sponsored by the American Association of Pharmaceutical Scientists and the
American College of Clinical Pharmacology. Dr. Romeo is an active member of the
American Association of Pharmaceutical Scientists, the American College of
Clinical Pharmacology, the Rho Chi Pharmaceutical Society, and the New York
Academy of Sciences. Dr. Romeo has also been appointed as an Adjunct Assistant
Professor of Pharmaceutics at The University of Rhode Island, College of
Pharmacy.
Joel Girsky has been a Director of the Company since October 1983, and
the Company's Secretary/Treasurer since April 1986. From 1961 to the present,
Mr. Girsky has been President and Chairman of the Board of Jaco Electronics,
Inc., Hauppauge, New York, a publicly held company engaged in the distribution
of electronic components. Mr. Girsky received a degree in Marketing from
Brooklyn College in 1957.
Dr. Ralph Jacobsen has been a Director of the Company since October
1983. From 1982 to the present, Dr. Jacobsen has been Medical Director of
Medicus Intercon, a division of D'Arcy Masius Benton & Bowles (New York City),
an international health care advertising agency. From 1981 to 1982, Dr.
Jacobsen was a private consultant engaged in the clinical evaluation of drugs.
From 1973 to 1981, Dr. Jacobsen was Vice President and Medical Director of
Endo-DuPont, Pharmaceutical Division (Garden City, New York), an entity engaged
in research, development, manufacture and sales of ethical pharmaceuticals.
Dr. Jacobsen received a B.A. Degree from New York University in 1953 and a
Medical Degree from George Washington University, School of Medicine in 1957.
Bruce R. Thaw has been a Director of the Company since June 1991. From
1984 to the present, Mr. Thaw has been a principal in a law firm, which serves
as general counsel to the Company. Mr. Thaw was admitted to the bar of the
State of New York in 1978 and the California State Bar in 1983. He has a BBA
degree from the Hofstra University School of Business and a JD degree from the
Hofstra University School of Law. Mr. Thaw is also a director of Information
Resource Engineering, Inc., a publicly traded company engaged in the computer
network security industry and Amtech Systems, Inc. a publicly traded company
engaged in the semi-conductor industry.
Alvin Katz was appointed to the Company's Board of Directors in
September 1993. He is currently an adjunct professor of business management at
Florida Atlantic University and has held this position since 1981. In 1991 Mr.
Katz was appointed as Chief Executive Officer of Odessa Engineering Corp., a
company engaged in the manufacturing of pollution monitoring equipment. He held
this position until that company was sold in September 1992. From 1957 to 1976,
Mr. Katz was employed by United Parcel Service holding various managerial
positions, including District Manager and Corporate Manager of Operations,
Planning, Research and Development. Mr. Katz serves on the Board of Directors
of several publicly held companies including Miller Industries, a manufacturer
of windows and doors; Blimpie International, Inc., which is engaged in the
franchising and marketing of quick service sandwich restaurants; Amtech
Systems, Inc., which is engaged in the semi-conductor industry; and Foremost
Industries which is engaged in the distribution and repair of commercial
refrigeration. He is also a director of Aromatics Incorporated, a manufacturer
of car wash equipment. Mr. Katz holds a B.S. in Business Administration degree
from New York University and has done graduate work at C.U.N.Y.- Baruch School.
John V. Pollock was appointed to the Company's Board of Directors in
September 1993. From 1991 to the present Mr. Pollock has served as a director
of Frank E. Basil, Inc., a worldwide provider of facilities maintenance,
engineering and operations management services. Mr. Pollock also serves as a
consultant to the partners of Basil Properties and has served as the President
of Nastech-Basil International, Inc. From 1975 to 1991 Mr. Pollock was a senior
banking executive in the
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<PAGE> 38
Washington, D.C. area, serving as President and Chief Executive Officer of
Dominion Bank of Washington and the John Hanson Savings Bank.
Dr. Ian R. Ferrier, who was appointed to the Company's Board of
Directors in January 1995, is the founder, President and Chief Executive
Officer of Bogart Delafield Ferrier Inc., and has served in such capacity since
its inception in 1982. Trained in medicine and pharmacology, Dr. Ferrier has
managed and directed pharmaceutical programs and guided the growth of several
multinational companies. He has served on the Board of Directors of a number of
health care and biotechnical firms, as well as serving as consultant to many of
the worlds major pharmaceutical companies. From 1982 to 1987, Dr. Ferrier
served as President of McCann Healthcare Inc. From 1982 to 1983, Dr. Ferrier
served as Chairman of The Covington Group of Companies; in 1982 as Executive
Vice President of TechAmerica Group and from 1979 to 1982, as Vice President of
Kalipharma Inc. From 1975 to 1979 Dr. Ferrier served as Chief Executive Officer
of the Monadnock Medical Center. Dr. Ferrier received a BSc in Pharmacology
from the University of Edinburgh, Edinburgh Scotland; served his residency
training in nephrology/clinical pharmacology at Southmead General Hospital,
University of Bristol Associated Hospitals, Bristol, England; and his
post-graduate internship at the Western General Hospital of the University of
Edinburgh Associated Hospitals, Edinburgh, Scotland.
The Underwriting Agreement between the Company and the Representative
executed in December, 1993 provides that, for a three year period, the
Representative shall be entitled to nominate one director to serve on the Board
of Directors of the Company. The officers and directors of the Company have
agreed to vote their shares of Common Stock in favor of such designee. The
Representative has exercised its right to designate a director by the
nomination of Mr. Alvin Katz.
COMMITTEES OF THE BOARD
The Company's Board of Directors has established a Compensation
Committee which is comprised of Devin N. Wenig, Joel Girsky and John V.
Pollock. The purpose of this Committee is to review and approve the
compensation of the Company's officers and to administer and/or interpret the
Company's stock option plan. The Audit Committee of the Company's Board of
Directors is comprised of Alvin Katz, Joel Girsky and John V. Pollock. The
purpose of this Committee is to review with the Company's independent auditor
Robbins, Greene, Horowitz, Lester & Co., LLP the financial controls and
practices of the Company and the plans for and results of the audit engagement.
DIRECTOR LIABILITY
The Delaware General Corporation Law permits Delaware corporations to
include in their certificates of incorporation a provision eliminating or
limiting the personal liability of directors of the corporation for damages
arising from certain breaches of fiduciary duty. The Company's Certificate of
Incorporation includes a provision eliminating the personal liability of
directors to the Company and its stockholders for damages to the maximum extent
permitted by Delaware law, including exculpation for acts of omissions in
violation of directors' fiduciary duty of care. Under current Delaware law,
liability is not eliminated in the case of a breach of a director's duty of
loyalty (i.e., the duty to refrain from transactions involving improper
conflicts of interest) to the Company or its stockholders, the failure to act
in good faith, the knowing violation of law or the obtainment of an improper
personal benefit. The Company's Certificate of Incorporation does not have any
effect on the availability of equitable remedies (such as an injunction or
rescission) for breach of fiduciary duty. However, as a practical matter,
equitable remedies may not be available in particular circumstances. See "Risk
Factors."
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<PAGE> 39
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation paid by the Company during each of the Company's last three fiscal
years to the Company's Chief Executive Officer and to each of the Company's
executive officers who received salary and bonus payments in excess of $100,000
during the fiscal year ended June 30, 1995:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
------------------- ------
Name and Principal Position
---------------------------
Options All other
Year Salary Bonus (Shares) Compensation
---- ------ ----- -------- ------------
<S> <C> <C> <C> <C> <C>
Dr. Vincent D. Romeo, 1995 $156,000 __ 25,000 __
President/Chief Executive
Officer 1994 $125,000 __ 25,000 __
1993 $125,000 __ 8,333 __
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides the specified information concerning
grants of options to purchase the Company's Common Stock during the fiscal year
ended June 30, 1995, to the person named in the Summary Compensation Table:
<TABLE>
<CAPTION>
Individual Grant in Last Fiscal Year
------------------------------------
% of Total
Options
Granted to
Options Employees in Exercise or
Granted Fiscal Base Price Expiration
Name (Shares) (1) Year ($/Sh) Date
---- ------------ -------------- ------ -------------
<S> <C> <C> <C> <C>
Dr. Vincent
D. Romeo 25,000 17% $5.13 6/1/00
</TABLE>
- -----------------------------------------------
(1) The options to be granted under the Plan are designated as
incentive stock options or non-incentive stock options by the Board of
Directors which also has discretion as to the persons to be granted options,
the number of shares subject to the options and the terms of the option
agreements. The Plan provides that options granted thereunder shall be
exercisable during a period of no more than ten years (five years in the case
of 10% stockholders) from the date of grant, depending upon the specific stock
option agreement, and that, with respect to incentive stock options, the option
exercise price shall be at least equal to 100% of the fair market value of the
Common Stock at the time of grant (110% in the case of 10% stockholders). All
outstanding options vest immediately upon issuance, subject to optionee's
continuous employment or
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<PAGE> 40
association with the Company. Under the Stock Option Plan, the Board retains
discretion to modify the terms of outstanding options, subject to the
provisions of the Plan.
(2) All options were granted at market value on the date of grant.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table provides information related to the number and
value of stock options and stock appreciation rights held at fiscal year end by
the named executive officer:
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-the Money
Options at June 30, 1995 Options at June 30, 1995
------------------------ ------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- -------------- ----------- -------------
<S> <C> <C>
Vincent D. Romeo 58,333 $448,435
</TABLE>
COMPENSATION OF DIRECTORS
The Company has not paid and does not presently propose to pay
compensation to any director for acting in such capacity, except for nominal
sums for attending Board of Directors meetings and reimbursement for reasonable
expenses in attending those meetings.
Devin N. Wenig, the Company's Chairman, was paid approximately $20,000
in the Company's fiscal year ended June 30, 1995 for acting in an executive
capacity at the request of the Company's Board of Directors.
EMPLOYMENT AGREEMENTS
In August 1994, the Company and Dr. Romeo entered into a three year
employment agreement. Pursuant to this agreement, Dr. Romeo receives
compensation of $160,000 per year. Upon completion of Phase II studies for two
of the Company's proposed products such compensation will be increased to
$175,000 per year. Dr. Romeo is also entitled to a $20,000 incentive bonus if
and when the Company's prescription Vitamin B-12 nasal formulation is approved
for marketing by the FDA and a $20,000 bonus each time an NDA for one of the
Company's proposed products is accepted for filing by the FDA. In addition, Dr.
Romeo received an additional incentive stock option to acquire 25,000 shares of
the Company's Common Stock in accordance with the terms and conditions of the
Company's Stock Option Plan.
STOCK OPTION PLAN
Under the Company's Stock Option Plan (the "Plan") options to purchase
a maximum of 483,333 shares of Common Stock of the Company (subject to
adjustment in the event of stock splits, stock dividends, recapitalizations and
other capital adjustments) may be granted to employees, officers and directors
of the Company and other persons who provide services to the Company.
Currently, there are 214,749 such options granted and outstanding. The options
to be granted under the Plan are designated as incentive stock options or
non-incentive stock options by the Board of Directors which also has discretion
as to the persons to be granted options, the number of shares subject to the
options and the terms of the option agreements. Only employees, including
officers and
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<PAGE> 41
part-time employees of the Company may be granted incentive stock options. The
options are intended to receive incentive stock option tax treatment pursuant
to Section 422A of the Internal Revenue Code of 1986, as amended (the "Code").
The Plan provides that options granted thereunder shall be exercisable
during a period of no more than ten years (five years in the case of 10%
shareholders) from the date of grant, depending upon the specific stock option
agreement, and that, with respect to incentive stock options, the option
exercise price shall be at least equal to 100% of the fair market value of the
Common Stock at the time of grant (110% in the case of 10% shareholders).
Pursuant to the provisions of the Plan, the aggregate fair market value
(determined on the date of grant) of the Common Stock with respect to which
incentive stock options are exercisable for the first time by an employee
during any calendar year shall not exceed $100,000.
The purpose of the Plan is to increase the ability of the Company to
attract and retain individuals of exceptional skill upon whom, in large
measure, its sustained progress, growth and ultimate profitability depend. In
addition, the Plan is intended to advance the interests of the Company by
enabling its directors, officers and employees to acquire a financial interest
in the Company through grants of options to acquire the Company's Common Stock.
The Plan is intended to provide an increased incentive to these individuals,
thereby providing such persons with an added incentive to continue in the
employ or service of the Company and to stimulate their efforts in promoting
the growth, efficiency and profitability of the Company.
CERTAIN TRANSACTIONS
In December 1992 the Company entered into a debt restructure agreement
with Basil Properties ("Basil") which amended the terms of a $600,000 loan by
Basil to the Company in May 1989 (the "Restructuring Agreement"). Pursuant to
the Restructuring Agreement, the Company is required to make annual principal
curtailments commencing September 30, 1993 equal to 5% of the Company's total
revenue for the preceding fiscal year ended June 30th, subject to an annual
minimum payment of $25,000. Should the Company's total revenue exceed
$5,000,000 in any fiscal year, the remaining unpaid principal balance shall
become due and payable the following September 30th. Basil has the option to
convert any outstanding portion of the principal balance of the loan into
shares of the Company's Common Stock. The conversion prices based upon the year
of conversion are as follows: 1995 - $16.44 per share; 1996 - $20.55 per share;
and 1997 - $25.68 per share. Any remaining unpaid principal balance is due and
payable January 1, 1998.
Mr. Bruce R. Thaw, a director of the Company, billed the Company
approximately $55,000 for legal fees for representing the Company in connection
with certain legal and regulatory matters in fiscal 1995. Mr. Thaw continues to
represent the Company for which he will be paid customary legal fees.
Dr. Ian Ferrier, a director of the Company, is the Chief Executive
Officer of Bogart Delafield Ferrier Inc. ("BDF") and is an affiliate of Mazier
Partners LLC ("MP"). BDF and MP provided consulting services to the Company in
areas of strategic planning, market planning and research and development
prioritization. For its fiscal year ended June 30, 1995, the Company paid BDF
and MP $186,000 and $56,000, respectively.
The Company will, in the future, attempt to avoid engaging in
transactions with affiliates of the Company. However, any future transactions
between the Company and any affiliate thereof will be on terms no less
favorable to the Company than those that are generally available from
unaffiliated third parties.
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<PAGE> 42
PRINCIPAL SHAREHOLDERS
Set forth below is information concerning the Common Stock ownership
as of December 22, 1995 and as adjusted to reflect the sale of the securities
offered hereby by (i) each person who is known by the Company to own
beneficially 5% or more of its outstanding Common Stock, (ii) each director,
and (iii) all directors and officers of the Company as a group.
<TABLE>
<CAPTION>
Percentage of Outstanding Shares Owned (3)
------------------------------------------
Amount and Nature
Name of Beneficial of Beneficial
Owner (1) Ownership (2) Before Offering After Offering
--------- ------------- --------------- --------------
<S> <C> <C> <C>
Devin N. Wenig (4)(8) 369,733 11.4% 7.8%
Basil Properties (5)(10) 283,537 8.8% 6.0%
Bruce R. Thaw (6) 155,041 4.7% 3.3%
Alvin Katz (7) 130,000 4.0% 2.8%
Carol Wenig (8) 93,041 2.9% 2.0%
Vincent D. Romeo (9) 68,845 2.1% 1.4%
Joel Girsky (7) 18,750 (13) (13)
John V. Pollock (7)(10) 18,333 (13) (13)
Ralph Jacobsen (7) 10,583 (13) (13)
Ian Ferrier (11) 25,000 (13) (13)
All Officers and
Directors as a Group
(9 persons) (12) 1,172,863 36.1% 24.8%
</TABLE>
- -----------------------------------------------------
(1) The addresses of all persons other than Messrs. Bruce R. Thaw, Basil
Properties, Alvin Katz and John V. Pollock is c/o the Company. The
address of Bruce R. Thaw is 45 Banfi Plaza, Farmingdale, NY; the
address of Basil Properties and John V. Pollock is 1510 H Street,
N.W., Washington D.C.; and the address of Alvin Katz is 19674 Waters
End Dr., No. 1003, Boca Raton, FL.
(2) All shares are owned beneficially and of record unless indicated
otherwise. Includes 178,333 shares issuable pursuant to outstanding
stock options with the Company and 26,000 Warrants, which may be
exercised within 60 days of the date of this Report.
(3) Does not give effect to (i) the exercise of the Representative's
Warrant and (ii) 305,000 shares of Common Stock reserved for issuance
under the Company's stock option plan to employees other than
Directors and Officers and options authorized but not issued.
(4) Devin N. Wenig is the son of Carol Wenig. Devin N. Wenig's shares, as
indicated above, include 25,000 shares issuable pursuant to
outstanding stock options with the Company, which may be exercised
within 60 days of the date of this Report, 166 shares held by Mr.
Wenig's wife and 6,666 shares held in a trust for which Carol Wenig
serves as the trustee.
(5) Includes 40,000 shares held by Mrs. Sophie Basil a general partner of
Basil Properties.
(6) Includes 25,000 shares issuable pursuant to outstanding stock options
with the Company, which may be exercised within 60 days of the date of
this Report. Also includes 26,000 shares and 26,000 Warrants owned by
Mr. Thaw's wife.
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<PAGE> 43
(7) Includes 10,000 shares issuable pursuant to outstanding stock options
with the Company, which may be exercised within 60 days of the date of
this Report.
(8) The amount indicated herein includes 5,000 shares issuable to Carol
Wenig pursuant to outstanding stock options with the Company, which
may be exercised within 60 days of the date of this Report.
(9) Includes 58,333 shares issuable pursuant to outstanding stock options
with the Company, which may be exercised within 60 days of the date of
this Report.
(10) John V. Pollock is a managing director of Basil Properties and its
nominee to the Company's Board of Directors.
(11) Includes 25,000 shares issuable pursuant to outstanding stock options
with the Company, which may be exercised within 60 days of the date of
this Report.
(12) Includes shares held by Basil Properties and Carol Wenig. See notes
(5), (8) and (10) above.
(13) Represents less than 1% of the outstanding shares of the Company's
Common Stock.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 6,000,000
shares of Common Stock, par value $.006 and 100,000 shares of Preferred Stock,
par value $.01. As of December 22, 1995 there were 3,221,447 shares of Common
Stock outstanding, and no shares of Preferred Stock outstanding.
COMMON STOCK
All the issued and outstanding shares of Common Stock are validly
issued, fully paid and non-assessable.
Voting Rights
Each outstanding share of Common Stock has one vote on all matters
requiring a vote of the shareholders. There is no right to cumulative voting;
thus, the holders of fifty percent or more of the shares outstanding can, if
they choose to do so, elect all of the directors of the Company.
Liquidation Rights
In the event of a voluntary or involuntary liquidation of the Company,
all shareholders are entitled to a pro rata distribution after payment of
liabilities and after provision has been made for each class of stock, if any,
having preference over the Common Stock.
Preemptive Rights
The holders of the Common Stock have no preemptive rights with respect
to the Company's offerings of shares of its Common Stock.
Dividend Rights
Holders of Common Stock are entitled to dividends if, as and when
declared by the Board of Directors out of the funds legally available
therefor. It is the present intention of the Company to retain earnings, if
any, for use in its business. Dividends are, therefore, unlikely in the
foreseeable future.
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<PAGE> 44
Transfer Agent
The Transfer Agent for the Common Stock of the Company is the
American Stock Transfer and Trust Company, 40 Wall Street, New York, NY 10005.
WARRANTS
The following is a brief summary of certain provisions of the
Warrants, but such summary does not purport to be complete and is qualified in
all respects by reference to the actual text of the Warrant Agreement between
the Company and American Stock Transfer & Trust Company (the "Transfer and
Warrant Agent"). A copy of the Warrant Agreement has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. See
"Additional Information."
Exercise Price and Terms. Each Warrant entitles the holder thereof to
purchase, at any time through December 7, 1996, one share of Common Stock at a
price of $5.50 per share (the "Initial Exercise Price"), provided that at such
a time a current prospectus relating to the Common Stock is then in effect and
the Common Stock is qualified for sale or exempt from qualification under
applicable state securities laws. The holder of any Warrant may exercise such
Warrant by surrendering the certificate representing the Warrant to the
Transfer and Warrant Agent, with the subscription form on the reverse side of
such certificate properly completed and executed, together with payment of the
exercise price. No fractional shares will be issued upon the exercise of the
Warrants.
Since December 7, 1994, the Warrants have been subject to redemption
at $.05 per Warrant on 30 days' prior written notice provided that the closing
bid price of the Company's Common Stock as reported on NASDAQ for 20
consecutive days, ending within 10 days of the notice of redemption, is in
excess of $5.63 (the "Initial Notice Price"). In the event the Company
exercises the right to redeem the Warrants, such Warrants will be exercisable
at the Initial Exercise Price until the close of business on the date fixed for
redemption in such notice. If any Warrant called for redemption is not
exercised by such time, it will cease to be exercisable and the holder will be
entitled only to the redemption price. All Warrants redeemed by the Company
will be canceled.
The Initial Exercise Price of the Warrants was determined by
negotiation between the Company and the Representative prior to the Company's
public offering in December, 1993. Among the factors considered in such
negotiations, at that time, were the state of the Company's development, the
Company's financial condition, the future prospects of the Company, an
assessment of management, the general condition of the securities market, the
demand for securities of comparable companies and other factors deemed
relevant. The Initial Exercise Price of the Warrants bears no relation to any
objective criteria of value, may be deemed to be arbitrarily determined and
should in no event be regarded as an indication of any future market price of
the securities offered hereby.
The Company has agreed to retain the Representative to solicit Warrant
exercises. Upon exercise of any Warrants, the Company will pay the
Representative a fee of 5% of the aggregate exercise price if (i) the market
price of the Company's Common Stock on the date the Warrant is exercised is
greater than the exercise price of the Warrants; (ii) the exercise of the
Warrant was solicited by a member of the National Association of Securities
Dealers, Inc.; (iii) the Warrant is not held in a discretionary account; (iv)
disclosure of compensation arrangements was made both at the time of the
offering and at the time of exercise of the Warrant; and (v) the solicitation
of exercise of the Warrant was not in violation of Rule 10b-6 promulgated under
the Exchange Act.
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<PAGE> 45
Rule 10b-6 may prohibit the Representative from engaging in any market
making activities with regard to the Company's securities for the period from
nine business days (or such other applicable period as Rule 10b-6 may provide)
prior to any solicitation by the Representative of the exercise of the Warrants
until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right that the Representative may
have to receive a fee for the exercise of Warrants following such solicitation.
As a result, the representative may be unable to continue to provide a market
for the Company's securities during certain periods while the Warrants are
exercisable.
Adjustments. The Initial Exercise Price and the number of shares of
Common Stock purchasable upon the exercise of the Warrants are subject to
adjustment upon the occurrence of certain events, including stock dividends,
stock splits, combinations or reclassifications of the Common Stock, or sale by
the Company of shares of its Common Stock at a price below the then applicable
exercise price of the Warrants. Additionally, an adjustment would be made in
the case of a reclassification or exchange of Common Stock, consolidation or
merger of the Company with or into another corporation or sale of all or
substantially all of the assets of the Company in order to enable Warrant
holders to acquire the kind and number of shares of Common Stock that might
otherwise have been purchased upon the exercise of the Warrants. No adjustments
will be made until the cumulative adjustments in the exercise price per share
amount to $.10 or more. No adjustment to the Initial Exercise Price will be
made for dividends (other than stock dividends), if any, paid on the Common
Stock or for securities issued pursuant to the Company's Stock Option Plan or
other employee benefit plans of the Company, or upon exercise of the Warrants,
the representative's Warrant or any other options or warrants outstanding as of
the date of this Prospectus.
Transfer, Exchange and Exercise. The Warrants are in registered form
and may be presented to the Transfer and Warrant Agent for transfer, exchange
or exercise at any time prior to their expiration on December 7, 1996, at which
time the Warrants become wholly void and of no value. If a market for the
warrants develops, the holder may sell the Warrants instead of exercising them.
There can be no assurance, however, that a market for the warrants will develop
or continue. If the Company is unable to qualify the Common Stock underlying
the Warrants for sale in particular states, holders of the Warrants residing in
such states and desiring to exercise the Warrants will have no choice but to
sell such Warrants or allow them to expire. See "Risk Factors - Current
Prospectus and State Blue Sky Registration Required in Connection with Exercise
of Warrants."
Warrantholder Not a Stockholder. The Warrants do not confer upon
holders any voting or any other rights as stockholders of the Company.
TAX CONSIDERATIONS OF WARRANTS.
General. The following section summarizes certain provisions of
United States income tax law that may affect (i) the Company, and (ii)
shareholders of the Company. This summary does not purport to discuss all of
the relevant income tax consequences of an investment in the Shares or
Warrants, nor will it apply to the same extent or in the same way to all
investors. It is based, among other things, on provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and published decisions,
regulations and rulings thereunder as in effect on the date of this Prospectus,
and the assumption that the Company will continue to be structured and to
operate its business in the manner prescribed in this Prospectus. No
information is provided herein with respect to the effect of any state or local
tax law, rule or regulation nor is any information provided as to the effect of
any foreign tax law or any provisions of United States tax law other than
United States income tax law.
Taxation of the Company. No gain or loss will be recognized by the
Company upon receipt of payment for Shares, upon exercise of Warrants,
redemption of Warrants or expiration of
42
<PAGE> 46
Warrants.
Taxation of Shareholders. No gain or loss will be recognized by the
holder of a Warrant upon exercise of a Warrant. The cost basis of the Common
Stock so acquired will be the cost basis of the Warrant plus any additional
amount paid upon the exercise of the Warrant. Gain or loss will be recognized,
however, upon the subsequent sale or exchange of the Common Stock acquired by
the exercise of the Warrant, measured by the difference between the amount
realized upon such sale or exchange and the cost basis of the Common Stock.
If a Warrant is sold by the holder or redeemed by the Company, gain or
loss will be recognized upon such event, measured by the difference between the
amount realized by the holder of the Warrant as a result of the sale or
redemption and the cost basis of the Warrant.
If a Warrant is allowed to expire, the Warrant will be deemed to be
sold or exchanged on the date of expiration. In such event, the holder of the
Warrant will recognize a loss to the extent of the cost basis of the Warrant.
Generally, any gain or loss recognized as a result of the foregoing
will be capital gain or loss and will either be long-term or short-term
depending upon the period of time the Common Stock sold or exchanged or the
Warrant sold, exchanged, redeemed, or allowed to expire, as the case may be,
was held. A holding period of more than one year results in long-term capital
gain or loss treatment. If a Warrant is exercised, the holding period of the
Common Stock so acquired will not include the period during which the Warrant
was held.
Under Section 305 of the Code and regulations promulgated under the
Code, there is no assurance that a subsequent adjustment in the exercise price
of the Warrants or the number of shares purchasable upon exercise as a result
of the anti-dilution provisions applicable to the Warrants, will not be deemed
a constructive distribution that may be taxable as a dividend to the holders of
the Warrants.
ALTHOUGH THE COMPANY BELIEVES THE FOREGOING TO BE AN ACCURATE SUMMARY
OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS ATTRIBUTABLE TO THE WARRANTS, IT
DOES NOT PURPORT TO BE A FULL DESCRIPTION OF THE FEDERAL, STATE OR LOCAL TAX
CONSIDERATIONS APPLICABLE TO THE WARRANTS OR THE UNDERLYING SHARES OF COMMON
STOCK. EACH HOLDER OF THE WARRANTS SHOULD SEEK THE ADVICE OF HIS OR HER OWN TAX
ADVISOR REGARDING THE EFFECTS THAT AN INVESTMENT IN THE WARRANTS WILL HAVE ON
HIS OR HER INDIVIDUAL TAX SITUATION.
PREFERRED STOCK
Pursuant to its Certificate of Incorporation, the Company's Board of
Directors is authorized to issue, without any action on the part of its
stockholders, an aggregate of 100,000 shares of preferred stock. The Board of
Directors has authority to divide the preferred stock into one or more series
and has broad authority to fix and determine the relative rights and
preferences, including the voting rights of the shares of each series.
Such preferred stock could also be used to delay, defer or prevent a
change in control of the Company or be used to resist takeover offers opposed
by management. Under certain circumstances, the Board of Directors could create
impediments to or frustrate persons seeking to effect a takeover or otherwise
gain control of the Company by causing shares of preferred stock with voting or
43
<PAGE> 47
conversion rights to be issued to a holder or holders who might side with the
Board of Directors in opposing a takeover bid that the Board of Directors
determines to be not in the best interest of the Company and its shareholders.
In addition, the Company's ability to issue such shares of preferred stock with
voting or conversion rights could dilute the stock ownership of such person or
entity.
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the Delaware General Corporation Law (the "Delaware
anti-takeover law") generally prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for
a period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) the corporation has elected in its
original certificate of incorporation not to be governed by the Delaware
anti-takeover law (the Company has not made such an election) (ii) prior to
such date the Board of Directors of the corporation approved either the
business combination or the transaction in which the person became an
interested stockholder, (iii) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the outstanding voting stock of the
corporation excluding shares owned by directors who are also officers of the
corporation and by certain employee stock plans, (iv) on or after such date
the business combination is approved by the Board of Directors of the
corporation and by the affirmative vote of at least 66 2/3% of the outstanding
voting stock of the corporation that is not owned by the interested
stockholder, or (v) the majority of the corporation's stockholders adopt an
amendment to the corporation's certificate of incorporation electing not to be
governed by the Delaware anti-takeover law, such amendment not being effective
for 12 months following its adoption and not applicable to any business
combination between the corporation and a stockholder who became an interested
stockholder after its adoption. A "business combination" generally includes
mergers, asset sales and similar transactions between the corporation and the
interested stockholder, and other transactions resulting in a financial benefit
to the stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns 15% or more of the corporation's voting stock
or who is an affiliate or associate of the corporation and, together with his
affiliates and associates, has owned 15% or more of the corporation's voting
stock within three years.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have
4,706,447 shares of Common Stock outstanding. In addition, the Company has
reserved for issuance 214,749 shares upon the exercise of options granted under
the Company's Stock Option Plan and 135,000 shares issuable upon exercise of
the Representative's Warrants and Warrants included in the Units issuable upon
exercise of the Representative's Warrants. Of the shares of Common Stock to be
issued and outstanding after this offering, the 1,485,000 shares of Common
Stock offered hereby will be freely tradeable without restriction or further
registration under the Securities Act, except for shares purchased or held by
an "affiliate" of the Company (in general, a person who has a control
relationship with the Company) which will be subject to the limitations of Rule
144 adopted under the Securities Act ("Rule 144"). Of the remaining
approximately 3,221,447 shares of Common Stock approximately 967,742 shares may
be deemed to be "restricted securities" as that term is defined under Rule 144,
and may not be sold unless registered under the Securities Act or exempted
therefrom. All of the foregoing shares are now eligible to be sold in
accordance with the exemptive provisions of Rule 144. Therefore, sales of the
Company's Common Stock by certain of the present shareholders in the future,
under Rule 144, may have a depressive effect on the price of the Company's
Common Stock.
In general, under Rule 144, as currently in effect, subject to the
satisfaction of certain other
44
<PAGE> 48
conditions, a person, including an "affiliate" of the Company, (or persons
whose shares are aggregated), who for at least two years has beneficially owned
restricted securities acquired directly or indirectly from the Company or an
affiliate of the Company in a private transaction is entitled to sell in
brokerage transactions within any three-month period, a number of shares that
does not exceed the greater of (i) 1% of the total number of outstanding shares
of the same class, or (ii) if the stock is quoted on Nasdaq, the average weekly
trading volume in the stock during the four calendar weeks preceding the day
notice is given to the Securities and Exchange Commission with respect to such
sale. A person (or persons whose shares are aggregated) who is not an
affiliate and has not been an affiliate of the Company for at least three
months immediately preceding the sale and who has beneficially owned restricted
securities for at least three years is entitled to sell such shares pursuant to
subparagraph (k) of Rule 144 without regard to any of the limitations described
above.
LEGAL MATTERS
The validity of the issuance of Shares offered hereby will be passed
upon for the Company by The Law Offices of Bruce R. Thaw, 45 Banfi Plaza,
Farmingdale, NY 11735. Bruce R. Thaw is a Director of the Company and owns
103,041 shares of the Company's Common Stock, inclusive of 25,000 shares
issuable pursuant to outstanding stock options with the Company.
EXPERTS
The financial statements of the Company as of June 30, 1995 and 1994
and for the years then ended, included herein and elsewhere in the
Registration Statement, have been included herein and in the Registration
Statement in reliance upon the report of Robbins, Greene, Horowitz, Lester &
Co., LLP independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission
(the "Commission"), a Registration Statement on Form SB-2 under the Securities
Act of 1933, as amended, with respect to the securities being offered hereby.
This Prospectus does not contain all the information contained in such
Registration Statement. For further information with respect to the Company and
the securities offered hereby, reference is made to such Registration Statement
and exhibits filed as part thereof, which may be examined and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of such material may be obtained at
prescribed rates by mail from the Public Reference Section of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete. In each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and, in accordance therewith, files reports,
proxy statements and other information with the Commission. Reports, proxy
statements and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: New York Regional Office, 75 Park
Place, New York, NY 10007; and Chicago Regional Office, 500 West Madison
Street, Suite 1400, Chicago, IL 60661-2511. Copies of such material may be
obtained at prescribed rates by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
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<PAGE> 49
To the Stockholders and
Board of Directors
Nastech Pharmaceutical Company Inc.
Independent Auditors' Report
We have audited the accompanying balance sheet of Nastech
Pharmaceutical Company Inc. as at June 30, 1995 and 1994 and the
related statements of operations, stockholders' equity and cash flows
for the years then ended. These financial statements are the
responsibility of the management of Nastech Pharmaceutical Company
Inc. Our responsibility is to express an opinion on these financial
statements based upon our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the aforementioned financial statements present
fairly, in all material respects, the financial position of Nastech
Pharmaceutical Company Inc. as at June 30, 1995 and 1994, and the
results of its operations and its cash flows for the years then ended
in conformity with generally accepted accounting principles.
As discussed in Notes 2 and 8 to the financial statements, the
Company changed its method of accounting for income taxes in 1994 and
restated prior period financial statements to reflect the change.
ROBBINS, GREENE, HOROWITZ, LESTER & CO., LLP
August 10, 1995
New York, New York
F - 1
<PAGE> 50
NASTECH PHARMACEUTICAL COMPANY INC.
BALANCE SHEET
<TABLE>
<CAPTION>
September 30, June 30,
1995 ----------------
---- 1995 1994
(Unaudited) ---- ----
ASSETS
------
CURRENT ASSETS:
<S> <C> <C> <C>
Cash and cash equivalents $ 706,276 $ 819,985 $ 3,214,929
Short-term investments 4,196,210 4,198,869 1,955,934
Royalties receivable 814,877 759,349 754,107
Prepaid expenses and sundry 33,950 63,670 14,210
---------- ---------- ----------
5,751,313 5,841,873 5,939,180
---------- ---------- ----------
PROPERTY AND EQUIPMENT 302,004 219,283 139,242
Less: Accumulated depreciation
and amortization 60,720 45,857 82,072
---------- ---------- ----------
241,284 173,426 57,170
---------- ---------- ----------
OTHER ASSETS:
Security deposits 19,613 19,613 5,613
---------- ---------- ----------
$ 6,012,210 $ 6,034,912 $ 6,001,963
========= ========= ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 727,140 $ 565,185 $ 502,977
Royalties payable 390,985 368,630 348,090
Note payable 23,287 40,942
Accrued interest payable 11,263 42,966 29,168
Accrued expenses and sundry
liabilities 179,286 218,856 247,673
Current maturities of
long-term debt 194,811 161,186 112,732
---------- ---------- ----------
1,526,782 1,397,765 1,240,640
---------- --------- ----------
LONG-TERM DEBT - NET OF CURRENT
MATURITIES 174,894 348,965 452,296
---------- ---------- ----------
STOCKHOLDERS' EQUITY:
Common stock - par value $.006
per share, authorized 6,000,000
shares, issued and outstanding
3,221,447 shares at June 30,
1995 and September 30, 1995 and
3,111,685 shares at June 30,
1994 19,329 19,329 18,670
Additional paid-in capital 10,575,159 10,575,159 10,517,218
Accumulated deficit (6,283,954) (6,306,306) (6,226,861)
---------- ---------- ----------
4,310,534 4,288,182 4,309,027
---------- ---------- ----------
$ 6,012,210 $ 6,034,912 $ 6,001,963
========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F - 2
<PAGE> 51
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months For the Years
Ended September 30, Ended June 30,
1995 1994 1995 1994
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
License fee,
royalty and
research income $ 818,459 $ 654,188 $ 2,683,925 $ 2,106,662
Interest income 63,051 54,048 253,858 93,583
--------- --------- --------- ---------
881,510 708,236 2,937,783 2,200,245
--------- --------- --------- ---------
COSTS AND EXPENSES:
Research and
development 283,259 139,982 882,356 504,140
Royalties 391,191 296,969 1,250,789 1,041,703
--------- --------- --------- ---------
674,450 436,951 2,133,145 1,545,843
General and
administrative 168,602 158,731 836,549 388,898
Interest expense 13,106 11,232 47,534 40,857
--------- --------- --------- ---------
856,158 606,914 3,017,228 1,975,598
--------- --------- --------- ---------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 25,352 101,322 (79,445) 224,647
PROVISION FOR INCOME TAXES 3,000 5,000 17,000
--------- --------- --------- ---------
NET INCOME (LOSS) $ 22,352 $ 96,322 $ (79,445) $ 207,647
========= ========= ========= =========
NET INCOME (LOSS) PER
COMMON AND COMMON
EQUIVALENT SHARE $ .01 $ .03 $ (.03) $ .08
========== ========= ========= =========
AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 3,849,776 3,242,876 3,119,718 2,524,432
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F - 3
<PAGE> 52
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
---------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
BALANCE - JUNE 30, 1993 1,428,723 $ 8,572 $ 5,691,150 $(6,434,508) $ (734,786)
Stock issued in connection
with private placement at
$1.20 per share 200,000 1,200 203,814 205,014
Additional shares issued in
connection with public
offering at $3.75 per
share 1,485,000 8,910 4,627,242 4,636,152
Fractional shares redeemed
in connection with reverse
stock split (2,038) (12) (4,988) (5,000)
Net income 207,647 207,647
--------- ------- --------- --------- --------
BALANCE - JUNE 30, 1994 3,111,685 18,670 10,517,218 (6,226,861) 4,309,027
Stock issued in connection
with exercise of stock
options 109,999 660 57,940 58,600
Fractional shares redeemed
in connection with reverse
stock split (237) (1) 1
Net loss (79,445) (79,445)
--------- ------ ---------- ---------- ---------
BALANCE - JUNE 30, 1995 3,221,447 19,329 10,575,159 (6,306,306) 4,288,182
Net income - three months
ended September 30, 1995
(unaudited) 22,352 22,352
--------- ------ ---------- ---------- ---------
BALANCE - SEPTEMBER 30,
1995 (UNAUDITED) 3,221,447 $19,329 $10,575,159 $(6,283,954) $4,310,534
========= ====== ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
F - 4
<PAGE> 53
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months For the Years
Ended September 30, Ended June 30,
1995 1994 1995 1994
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 22,352 $ 96,322 $ (79,445) $ 207,647
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities:
Depreciation and amortization 14,863 5,681 27,395 22,040
Amortization of deferred charges 10,000
Abandonment of property and equipment 3,376
Changes in assets and liabilities:
Royalties receivable (55,528) 101,471 (5,242) (371,986)
Prepaid expenses and sundry 29,720 6,754 (49,460) (9,272)
Accounts payable 161,955 (29,389) 62,208 50,797
Royalties payable 22,355 (51,120) 20,540 178,090
Note payable 40,942
Accrued interest payable (31,703) (18,990) 13,798 8,168
Accrued expenses and sundry
liabilities (39,570) (9,550) (28,817) 21,692
--------- --------- ---------- ---------
Net cash provided
by operating activities 124,444 101,179 5,295 117,176
--------- --------- ---------- ---------
INVESTING ACTIVITIES:
Property, plant and equipment (82,721) (11,321) (85,327) (42,047)
Short-term investments - acquisitions (2,190,029) (11,172,459) (8,804,029)
Short-term investments - redemptions 2,192,688 724,509 8,929,524 6,848,095
Other assets (14,000)
--------- --------- ---------- ---------
Net cash used by
investing activities (80,062) 713,188 (2,342,262) (1,997,981)
--------- --------- ---------- ---------
FINANCING ACTIVITIES:
Repayment of debt (158,091) (110,168) (116,577) (46,916)
Exercise of stock options 58,600
Redemption of fractional shares (5,000)
Proceeds from sale of common stock 4,841,166
--------- --------- ---------- ---------
Net cash provided (used)
by financing activities (158,091) (110,168) (57,977) 4,789,250
--------- --------- ---------- ---------
NET INCREASE (DECREASE) (113,709) 704,199 (2,394,944) 2,908,445
CASH AND CASH EQUIVALENTS - BEGINNING 819,985 3,214,929 3,214,929 306,484
--------- -------- ---------- ---------
CASH AND CASH EQUIVALENTS - ENDING $ 706,276 $3,919,128 $ 819,985 $ 3,214,929
========= ========= ========== ==========
Supplemental Cash Flow Information:
Interest paid $ 42,946 $ 29,925 $ 33,736 $ 32,689
Capital expenditures and proceeds
from loans have been reduced by
additions financed of $ $ $ 61,700 $
</TABLE>
See accompanying notes to financial statements.December 26, 1995
F - 5
<PAGE> 54
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
Nastech Pharmaceutical Company Inc. (the "Company") was
incorporated under the laws of the State of New York on
March 3, 1983 and reincorporated under the laws of the
State of Delaware on September 23, 1983. Through exclusive
and nonexclusive licensing agreements with the University
of Kentucky Research Foundation, and special technical
agreements with the University of Kentucky College of
Pharmacy, the Company is engaged in the business of developing
pharmacologically active agents that are effective in humans
when administered through the nasal route.
In addition to the Company's licensing arrangements with the
University of Kentucky Research Foundation, the Company has
researched a number of drugs independently, for which patents
have been applied and granted.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED
MATTERS
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased
with an original maturity of three months or less when
purchased to be cash equivalents.
Short-Term Investments
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." As required under the
Statement, the Company adopted the provisions of the new standards as
of the beginning of its current fiscal year. In accordance with the
Statement, prior period financial statements have not been restated to
reflect the change in accounting principle. The cumulative effect of
adopting Statement 115 did not have a material effect on the
Company's financial statements. At June 30, 1994 the investments
were carried at cost plus accrued interest, which approximated market.
Management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such
designation as of each balance sheet date. Debt securities
are classified as held-to-maturity. Short-term investments
are classified as held-to-maturity only if management has the
positive intent and ability to hold those securities to
maturity. The amortized cost of debt securities is adjusted
for amortization of premiums and accretion of discounts to
maturity. Such amortization is included in interest income.
Short-term investments consist of highly liquid United States
Treasury Bills having original maturities of six months.
There were no material unrealized holding gains or losses.
F - 6
<PAGE> 55
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATEDMATTERS
(CONTINUED)
Property and Equipment
Property and equipment are carried at cost. Depreciation is
computed using accelerated methods. Leasehold improvements
are amortized over the life of the lease. When assets are
retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and
any resulting gain or loss is recognized in the period. The
cost of maintenance and repairs is charged to income as
incurred and significant renewals and betterments are
capitalized.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company
to concentration of risk, consist of cash, investments and
royalty receivables. The Company places its investments in
highly rated US Treasury obligations which limits the amount
of credit exposure. The Company has royalty agreements with
highly rated pharmaceutical companies. Historically, the
Company has not experienced significant losses related to
investments or royalty receivables.
Recognition of Income
The Company recognized income from royalties based upon the
sale of licensed products as reported by licensees. Income
from license fees and research income are not significant and
are recognized as earned.
Net Income (Loss) Per Common and Common Equivalent Share
Net income (loss) per common and common equivalent share are
calculated using the weighted average number of common shares
outstanding during the period and the net additional number
of shares which would be issuable upon the exercise of stock
options and warrants, assuming that the Company used the
proceeds received to purchase additional shares at market
value. For the year ended June 30, 1995 the effect of stock
options and warrants is not included because it would be
anti-dilutive. The conversion of convertible debt to Basil
Properties has not been considered in the calculation of
earnings per share because it would be anti-dilutive or
immaterial due to the conversion price being significantly in
excess of the market value.
Income Taxes
For the year ended June 30, 1994, the Company has adopted
Statement 109, Accounting for Income Taxes issued by the
Financial Accounting Standards Board and has applied the
provisions of SFAS 109 retroactively to July 1, 1991. Under
such statement, the tax benefits of tax operating loss
carryforwards are recorded to the extent available less a
valuation allowance if it is more likely than not that some
portion of the deferred tax asset will not be realized. At
June 30, 1995 the approximately $1,500,000 of available tax
benefits of the loss carryforwards are offset by a
corresponding amount of valuation allowance.
F - 7
<PAGE> 56
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED
MATTERS (CONTINUED)
Reverse Stock Split and Increase in Authorized Shares
On November 8, 1993 shareholders approved a one for three
reverse split of the common stock of the Company and an
increase in the newly authorized shares to 6,000,000.
Numbers of shares and per share data disclosed herein have
been retroactively adjusted to reflect the stock split for all
periods presented.
NOTE 3 - ROYALTIES RECEIVABLE
Royalties receivable at June 30, 1995 and 1994 principally
represent amounts due from licensees of the Company's patents
for the three months ended June 30, 1995 and 1994.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Furniture and fixtures $ 64,066 $ 65,129
Machinery and equipment 74,916 32,194
Computer equipment 20,777 30,439
Leasehold improvements 59,524 11,480
------- -------
219,283 139,242
Less: accumulated depreciation
and amortization 45,857 82,072
------- -------
Net $173,426 $ 57,170
======= =======
</TABLE>
Property and equipment having a net book value of
$67,315 at June 30, 1995 has been pledged to secure
related liabilities.
NOTE 5 - LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following at June 30, 1995
and 1994:
1995 1994
---- ----
<S> <C> <C>
Loan payable - Basil Properties $446,867 $556,867
Other: equipment loans 63,284 8,161
510,151 565,028
------- -------
Less: amount payable within
one year 161,186 112,732
------- -------
$348,965 $452,296
======= =======
</TABLE>
On May 3, 1989, Basil Properties ("Basil") made a loan to the
Company of $600,000. The loan was due the earlier of May 3,
1991 or the closing of a public offering of the capital stock
of the Company.
F - 8
<PAGE> 57
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - LONG-TERM DEBT (CONTINUED)
On May 3, 1991 the Company was unable to repay the loan to
Basil. Basil agreed to forbear from declaration of the loan
and all accrued interest as immediately due and payable
until May 3, 1992 and was further extended until January 1,
1998.
In consideration of this forbearance on July 17, 1991, the
Company issued a warrant granting Basil a five year right to
purchase 66,666 shares of the common stock of the Company at
a purchase price of $.375 per share, which price was equal to
the fair market value of a share of the Company's common
stock on the date of the agreement. During each of the years
ended June 30, 1993 and 1992, 33,333 shares were purchased
under this warrant.
The loan is secured by the Company's right to receive
royalties under its agreement with Nature's Bounty, Inc. and
its interest in the manufacture, production, licensing or
distribution of any products related to the
nasal administration of Vitamin B-12 gel.
On December 14, 1992 the Company entered into an agreement
with Basil restructuring the $600,000 loan of May 3, 1989.
The Company is to make annual principal payments beginning
September 30, 1993 equal to 5% of total revenue for the
preceding fiscal year ended June 30 subject to an annual
minimum of $25,000. Should the Company's total revenue
exceed $5,000,000 in any fiscal year, the remaining unpaid
principal balance shall become due the following September
30. The remaining unpaid principal balance is due and payable
January 1, 1998.
Additionally, Basil has been given the option to convert any
outstanding portion of the principal balance of the $600,000
loan to the Company's common stock. The conversion prices,
based on a calendar year are as follows: 1995- $16.44, 1996-
$20.55, 1997- $25.68.
The conversion of convertible debt to Basil Properties has
not been considered in the calculation of earnings per share
because it would be anti-dilutive or not material because the
conversion price was significantly greater than the market
price of the stock at all times.
All accrued interest outstanding on the $600,000 loan as of
December 31, 1992 of $341,899 was converted to the Company's
common stock at a conversion price of $4.86 per share.
Effective January 1, 1993 interest shall accrue on the unpaid
principal balance at a rate of prime plus 1% and is due and
payable each September 30. For the years ended June 30, 1995
and 1994 the prime interest rate ranged from 6% to 6.25% and
7.25% to 9%, respectively. The year-end prime rates at June
30, 1995 and 1994 were 6.25% and 9%.
F - 9
<PAGE> 58
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - LONG-TERM DEBT (CONTINUED)
Additionally, in December 1992 a $120,000 loan granted by
Basil pursuant to agreements dated February 26, 1991 which
was due February 15, 1993 was also restructured. The
principal balance and all outstanding interest as of December
31, 1992 of $20,727 was converted to common stock at $4.86
per share.
Basil is an 8.8% shareholder of the Company, assuming the
debt is not converted into common stock, and has representation
on the Board of Directors. Interest on this debt for the years
ended June 30, 1995 and 1994 amounted to $42,946 and $40,312,
respectively.
Maturities of long-term debt during the five years ending June 30,
2000 are $161,186, $39,133, $287,203, $12,336 and $10,293.
The maturities prior to January 1, 1998 will increase to the
extent that total revenues exceed $500,000 per annum (see Basil
loan repayment terms above).
NOTE 6 - STOCKHOLDERS' EQUITY
The Company completed a Public Offering of 742,500 units of
common stock and warrants in Fiscal 1994. The units in the
aggregate consisted of 1,485,000 shares of common stock and
1,485,000 common stock warrants.
Each warrant entitles the holder to purchase one share of
Common Stock at a price of $5.50 at any time through December
7, 1996. The warrants are subject to redemption by the
Company at $.05 per warrant on 30 days' prior written notice
if the closing bid price for the common stock, as reported on
NASDAQ is in excess of $5.63 for 20 consecutive trading days
ending within 10 days of the notice of redemption of the
warrants.
The Company sold to the representative of the underwriter for
the offering at a price of $67.50, warrants to purchase one
unit for every ten units sold in the offering up to an
aggregate of 67,500 units at an exercise price per warrant of
$8.25 per Unit (110% of the initial public offering price per
unit), exercisable for a period of four years commencing
December 7, 1994.
The Company had a private placement of 200,000 shares
of common stock on September 14, 1993 resulting in net
proceeds to the Company of $205,000. The proceeds were used
to provide funding for the costs incurred related to the
public offering.
The Company is authorized to issue up to 100,000 shares of
Preferred Stock the designations, powers, preferences and
rights of which may be determined, from time to time, by the
Company's Board of Directors.
In accordance with its agreement with Basil, the Company may
not declare or pay any dividends.
F - 10
<PAGE> 59
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - STOCK OPTION PLAN
Under the Company's Stock Option Plan (the "Plan") options to
purchase a maximum of 483,333 shares of common stock
(subject to adjustment in the event of stock splits, stock
dividends, recapitalization and other capital adjustments)
may be granted to employees, officers and directors of the
Company and other persons who provide services to the
Company. The options to be granted under the Plan are
designated as incentive stock options or non-incentive stock
options by the Board of Directors which also has discretion
as to the person to be granted options, the number of shares
subject to the options and the terms of the option
agreements. Only employees, including officers and part-time
employees of the Company may be granted incentive stock
options. The options are intended to receive incentive stock
option tax treatment pursuant to Section 422A of the Internal
Revenue Code of 1986, as amended (the "Code").
The Plan provides that options granted thereunder shall be
exercisable during a period of no more than ten years (five
years in the case of 10% shareholders) from the date of
grant, depending upon the specific stock option agreement,
and that, with respect to incentive stock options, the option
exercise price shall be at least equal to 100% of the fair
market value of the Common Stock at the time of grant (110%
in the case of 10% shareholders). Pursuant to the provisions
of the Plan, the aggregate fair market value (determined on
the date of grant) of the Common Stock with respect to which
incentive stock options are exercisable for the first time by
an employee during any calendar year shall not exceed
$100,000. The Plan is in lieu of all prior option and
incentive plans and is administered by the Company's Board
of Directors. Options outstanding at June 30, 1995 are at
prices ranging from $.51 to $5.64 per share, the fair market
value on the date of grant, and expire at various dates to
June 1, 2000. During the year ended June 30, 1995, options
to acquire 50,000 shares of stock at $.56 and 59,999 shares
at $.51 were exercised.
Data relating to this plan is as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Outstanding at beginning of year 174,998 124,998
Granted 149,750 50,000
Exercised 109,999
------- -------
Outstanding at end of year 214,749 174,998
======= =======
</TABLE>
F - 11
<PAGE> 60
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES
Internal Revenue Service regulations require that limitations
be placed on the Company's use of its net operating loss
carryforward as a result of the change in ownership created
by the December, 1993 public offering of the Company's common
stock. As a result, at June 30, 1995, the estimated maximum
amount of the net operating loss carryforward available to
reduce future taxable income is approximately $4,400,000,
expiring from 2000 through 2010. The net operating loss
carryforward may be used to reduce taxable income by
approximately $300,000 per year.
The approximate amounts of net operating loss carryforward
and the year of expiration are as follows:
<TABLE>
<CAPTION>
Amount Year of Expiration
------ ------------------
<S> <C>
$ 600,000 2000
1,150,000 2001
810,000 2002
320,000 2003
320,000 2004
320,000 2005
320,000 2006
320,000 2007
170,000 2008
70,000 2010
</TABLE>
Federal income taxes normally provided on the September 30,
1995 and September 30, 1994 and June 30, 1994 income have
been offset by the effects of the use of the loss
carryforward of approximately $8,000, $35,000 and $72,000,
respectively. The income tax provision for the three months
ended September 30, 1995 and 1994 and for the year ended June
30, 1994 represents the New York State minimum tax on income
which does not allow a deduction for the net operating loss
carryforward.
As discussed in Note 2, the Company adopted SFAS 109 in the
year ended June 30, 1994 and has applied the provisions of
SFAS 109 retroactively to July 1, 1991. SFAS 109 requires
the recognition of deferred tax assets and liabilities for
the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. In
addition, the new accounting standard requires the
recognition of future tax benefits, such as net operating
loss carryforwards, to the extent that realization of such
benefits is more likely than not. The adoption of SFAS 109
resulted in a cumulative effect credit of $80,000 or $.07 per
common share, at July 1, 1991. Excluding the cumulative
effect credit, the application of SFAS 109 increased net
income by $80,000 in the fiscal year ended June 30, 1992
which primarily relates to the reversal of deferred taxes
previously provided. The change in accounting for income
taxes had no effect on the statements of operations for the
year ended June 30, 1994.
F - 12
<PAGE> 61
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - COMMITMENTS AND CONTINGENCIES
A) Employment Agreement:
The Company and Dr. Vincent Romeo, its president, have an
employment agreement expiring August 1, 1997. Pursuant to
this agreement, Dr. Romeo receives compensation of $160,000
per year. Upon completion of Phase II studies for two of
the Company's proposed products such compensation will be
increased to $175,000 per year. Dr. Romeo will also be
entitled to a $20,000 incentive bonus if and when the
Company's prescription Vitamin B-12 nasal formulation is
approved for marketing by the FDA and a $20,000 bonus each
time an NDA for one of the Company's proposed products is
accepted for filing by the FDA. In addition, Dr. Romeo
received an additional incentive stock option to acquire
25,000 shares of the Company's common stock in accordance
with the terms and conditions of the Company's stock
option plan.
B) Minimum Royalty Payments:
In connection with the license agreement with the
University of Kentucky Research Foundation ("UKRF"), the
Company is to make royalty payments to UKRF with respect
to sales of products covered under the patents licensed to
the Company by UKRF.
Minimum royalty payments begin twelve months after
FDA marketing approval for any product covered under the
agreement is received by the Company. The minimum royalty
beginning twelve months after FDA approval amounts to
$100,000 per year.
In the event there are no unexpired patents licensed to
the Company by UKRF covering the manufacture, use or sale
of products, then the Company is to pay one half of such
royalties and minimum royalties.
C) Leases:
The Company leases office and laboratory space under a
lease agreement expiring on May 31, 2000, with a 5 year
renewal option. The following is a schedule of
future minimum lease payments:
<TABLE>
<S> <C>
Year Ending June 30, 1996 $ 66,750
1997 81,083
1998 82,080
1999 83,087
2000 77,000
-------
$390,000
=======
</TABLE>
Rental expense for real property aggregated approxi-
mately $78,000 and $43,000 for the years ended June 30,
1995 and 1994, respectively.
F - 13
<PAGE> 62
NASTECH PHARMACEUTICAL COMPANY INC.
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
D) Insurance:
The Company does not maintain product liability insurance
for commercial products as the Company manufactures no
commercial products. The product marketed by
Bristol-Myers Squibb, Co. is owned by them. The product
marketed by Nature's Bounty, Inc. is manufactured, marketed
and distributed by them.
The Company does maintain product liability insurance in
connection with its clinical trial activities.
At the present time the management of the Company has no
knowledge of any claims against the Company. Management of
the Company cannot estimate any range of possible loss
with regard to product liability claims, and no provision
has been made in these financial statements for any
possible loss.
NOTE 10 - CONTRACTUAL AGREEMENTS
The Company has entered into an exclusive agreement
(as amended) with RiboGene, Inc. (successor to Rugby
Laboratories, Co., Inc.) ("RiboGene") for the manufacture,
marketing and distribution of certain of the Company's
products following FDA approval. The Company is to receive a
percentage of net sales after RiboGene has recovered certain
costs incurred. On June 26, 1987, the Company entered into
an agreement appointing Ribogene as its exclusive licensee to
manufacture, distribute and market propranolol. In
consideration for the transfer of the propranolol research
and development information and for the exclusive license for
the propranolol patents, RiboGene paid the Company $350,000
and $250,000 in 1987 and 1989, respectively. Additionally,
the Company receives an annual licensing fee of $32,000
payable quarterly. During each of the years ended June 30,
1995 and 1994 and the Company recorded $32,000 as license fee
income on this contract.
RiboGene has also agreed to pay the Company a royalty of 7%
based on net sales, as defined.
During November, 1985, the Company entered into an exclu-
sive agreement with Nature's Bounty, Inc. ("NB") under which
NB will manufacture, market and sell a nonprescription,
nasally administered vitamin B-12 dietary supplement. The
financial arrangements include the Company receiving a
percentage of net sales of the product. For the years ended
June 30, 1995 and 1994 the Company earned royalties of
$116,000 and $144,000, respectively, under the agreement.
However, in March 1995, the FDA was successful in litigation
brought against NB requiring that NB obtain FDA approval in
order to market this product. The Company has been informed
that pending appeal, NB will continue to market this product.
Until the litigation is resolved, the Company's management
believes its royalties will be limited.
F - 14
<PAGE> 63
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - CONTRACTUAL AGREEMENTS (CONTINUED)
In January, 1986, the Company licensed to Bristol-Myers
Squibb, Co. its patent to administer the drug butorphanol
nasally, which resulted in license fee income of
approximately $2,530,000 and $1,901,000 for the years ended
June 30, 1995 and 1994, respectively. FDA approval was
obtained for this product in December, 1991. The nasal
butorphanol patent expires in the year 2001 in the United
States subject to any right of extension or renewal.
On March 31, 1990 the Company entered into an agreement (as
amended) with RiboGene whereby the Company terminated the
manufacturing and distribution agreement and sold its patent
rights and research information relating to its developmental
drug metoclopramide in nasal delivery form for $700,000.
RiboGene has also agreed to pay the Company a royalty ranging
from 5% to 7% based on net sales, as defined with a minimum
payment in 1998 of $50,000, $75,000 in 1999 and $100,000 each
year thereafter.
On June 30, 1994, the Company sublicensed to The DuPont Merck
Pharmaceutical Company ("DuPont Merck") its development and
commercial exploitation rights with respect to its licensed
patent rights for the nasal delivery of nalbuphine, in
exchange for which DuPont Merck agreed to pay the Company a
royalty based on the net sales of such product (the "DuPont
Merck Agreement"). Nalbuphine is a synthetic analgesic agent
indicated for the relief of moderate to severe pain. The
DuPont Merck Agreement is limited to the countries of Canada
and Mexico and is coextensive with the Company's licensed
patent rights to nasal nalbuphine in those countries. The
nasal nalbuphine patent expires in the year 2001 in Canada,
subject to any right of extension or renewal. The Mexican
patent for nasal nalbuphine is currently pending. The DuPont
Merck Agreement may be terminated by Dupont Merck at any time
upon 60 days written notice to the Company.
F - 15
<PAGE> 64
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Delaware General Corporation Law, as amended, provides for the
indemnification of the Company's officers, directors and corporate employees
and agents under certain circumstances as follows:
DEL. CODE ANN. TITLE 8
Sec. 145. Indemnification of officers, directors, employees
and agents; insurance
a) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
b) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or
was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including
attorneys' fees), actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable
to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity
II - 1
<PAGE> 65
for such expenses which the Court of Chancery or such other court
shall deem proper.
c) To the extent that a director, officer, employee or agent
of a corporation has been successful on the merits or otherwise in
defense of any action suit or proceeding referred to in subsections
(a) and (b) of this section, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
d) Any indemnification under subsection (a) and (b) of this
section (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper
in the circumstances because he has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties
to such action, suit or proceedings, or (2) if such a quorum is not
obtainable, or, even, if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
e) Expenses incurred by an officer or director in defending a
civil or criminal action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the
corporation as authorized in this section. Such expenses incurred by
other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
f) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other subsections of this section
shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled
under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and
as to action in another capacity while holding such office.
g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him
against such liability under this section.
h) For purposes of this section, references to "the
corporation" shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and authority
to indemnify its directors, officers, and employees or agents, so that
any person who
II - 2
<PAGE> 66
is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under this section with respect to
the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had
continued.
i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes
duties on, or involves services by, such director, officer, employee
or agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have
acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this section shall, unless otherwise
provided when authorized or ratified, continue as to a person who has
ceased to be director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a
person.
The Certificate of Incorporation of the Company provides that the
indemnification provisions of Sections 102(b)(7) and 145 of the Delaware
Corporation Law shall be utilized to the fullest extent possible. Further, the
Certificate of Incorporation contains provisions to eliminate the liability of
the Company's directors to the Company or its stockholders to the fullest
extent permitted by Section 102(b)(7) of the Delaware General Corporation Law,
as amended from time to time.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, is permitted to directors, officers or
controlling persons of the Registrant, pursuant to the above mentioned statutes
or otherwise, the Registrant understands that the Securities and Exchange
Commission is of the opinion that such indemnification may contravene federal
public policy, as expressed in said Act, and therefore, may be unenforceable.
Accordingly, in the event that a claim for such indemnification is asserted by
any director, officer or a controlling person of the Company, and the
Commission is still of the same opinion, the Registrant (except insofar as such
claim seeks reimbursement by the Registrant of expenses paid or incurred by a
director, officer of controlling person in successful defense of any action,
suit or proceeding) will, unless the matter has theretofore been adjudicated by
precedent deemed by counsel for the Registrant to be controlling, submit to a
court of appropriate jurisdiction the question whether or not indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue. The Underwriting and Selected Dealers
agreements provide for reciprocal indemnification and such provisions are
incorporated by reference herein.
II - 3
<PAGE> 67
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and
distribution of the securities to be registered other than selling expenses are
as follows:
<TABLE>
<S> <C>
Accountants' Fees and Services $ 5,000.00
Fees and Expenses of Counsel
for the Registrant $ 15,000.00
Miscellaneous $ 5,000.00
---------
TOTAL $ 25,000.00*
</TABLE>
* All items are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Within the last three years, the Registrant has sold securities which
were not registered under the Securities Act of 1933, as amended, as follows:
The Registrant has issued incentive or other stock options to purchase
shares of common stock to the following persons on the dates and in the amounts
indicated below:
<TABLE>
<CAPTION>
NO. OF SHARES
NAME DATE OF ISSUE ON EXERCISE EXERCISE PRICE
---- ------------- ----------- --------------
<S> <C> <C> <C>
Devin N. Wenig June 1, 1995 25,000 $5.6375
Bruce R. Thaw June 1, 1995 25,000 $ 5.125
Vincent D. Romeo October 23, 1992 8,333 $1.77
January 24, 1994 25,000 $3.72
June 1, 1995 25,000 $5.125
Joel Girsky June 1, 1995 10,000 $5.125
Alvin Katz June 1, 1995 10,000 $5.125
John V. Pollack June 1, 1995 10,000 $5.125
Ralph Jacobsen June 1, 1995 10,000 $5.125
Ian Ferrier June 1, 1995 25,000 $5.125
Carol Wenig June 1, 1995 5,000 $5.125
Anthony Sileno June 1, 1995 5,000 $5.125
Jorge deMeireles January 24, 1994 5,000 $3.72
June 1, 1995 5,000 $5.125
William E. Gannon March 23, 1994 5,000 $4.25
</TABLE>
II - 4
<PAGE> 68
<TABLE>
<S> <C> <C> <C>
Charan R. Behl January 9, 1995 5,000 $5.00
Roberta Silverman June 1, 1995 1,000 $5.125
William Gries June 1, 1995 1,000 $5.125
Harish Pimplasker June 1, 1995 1,000 $5.125
Mildred Ferrin June 1, 1995 500 $5.125
Marcia Clinard June 1, 1995 500 $5.125
Lisa Giammarusco June 1, 1995 750 $5.125
</TABLE>
To date, none of these stock options have been exercised.
In September, 1993, the Company completed a private bridge financing
consisting of 200,000 shares of the Company's Common Stock for which the
Company received gross proceeds of $240,000 ($1.20 per share). Pursuant to an
agreement with the Representative, Mr. Alvin Katz was nominated to the
Company's board of directors and subscribed for 120,000 shares of the Company's
Common Stock in the bridge financing. Messrs. Devin N. Wenig and Bruce R. Thaw,
directors of the Company, each subscribed for 20,000 shares of Common Stock in
the bridge financing and Dr. Vincent D. Romeo, the Company's President
subscribed for 10,000 shares of Common Stock.
In June 1993, in accordance with a Debt Restructuring Agreement with
Basil Properties, the accrued interest outstanding on a $600,000 loan
($341,899) was converted into 70,349 shares of the Common Stock of the Company
at a conversion price of $4.86 per share. The Debt Restructuring Agreement also
amended the terms of a Loan Agreement entered into by the Company and Basil in
February, 1991 wherein Basil loaned the Company $120,000. As restructured, the
$120,000 loan and all accrued interest ($20,727) were converted into 28,956
shares of the Common Stock of the Company at a conversion price of $4.86 per
share.
In June 1995, Mr. Bruce R. Thaw exercised stock options, granted in
September 1991, to purchase 50,000 shares of the Company's Common Stock at an
exercise price of $.51 per share; Devin N. Wenig exercised stock options,
granted in September 1991, to purchase 50,000 shares of the Company's Common
Stock at an exercise price of $.56 per share and Joel Girsky exercised stock
options, granted in September 1991, to purchase 6,666 shares of the Company's
Common Stock at an exercise price of $.51 per share.
Such sales did not involve broker transactions. Additionally, none of
such transactions was registered under the Securities Act of 1933, as amended,
in reliance upon the exemption set forth in Section 4(2) of such Act. All
purchasers were either familiar with the business and prospects of the Company,
constituted the management of the Company, and/or had full access to the books
and records of the Company. Each purchaser agreed to purchase his shares for
investment and no further distribution. Appropriate stop transfer instructions
will be given to the Company's Transfer Agent.
II - 5
<PAGE> 69
ITEM 27. EXHIBITS
The following Exhibits, required by Item 601 of Regulation S-B, are
filed as part of this registration statement. Where such filing is made by
incorporation by reference (I/B/R), reference is made to Commission file number
0-13789 unless another statement or report is identified in parentheses.
<TABLE>
<CAPTION>
Official Sequential
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
1A Form of Underwriting Agreement I/B/R (3)
1B Form of Representative's Warrant I/B/R (3)
3A Articles of Incorporation of Registrant, as
amended and filed with the Secretary of
State of Delaware on November 8, 1993 I/B/R (3)
3B Amended By - Laws of Registrant I/B/R (3)
4A Specimen of Common Stock Certificate
of Registrant I/B/R (3)
4B Specimen Warrant Certificate I/B/R (3)
4C Form of Warrant Agreement I/B/R (3)
5 Opinion of Counsel as to the legality
of securities being registered
10A Licensing Agreement with UKRF I/B/R (1)
10B Lease for facilities at 45 Davids
Drive, Hauppauge, NY I/B/R
10C Sublicense Agreement with
Bristol-Myers Squibb Co. I/B/R (2)
10D Manufacturing and Distribution
Agreement between Registrant
and Nature's Bounty, Inc. I/B/R
10E Manufacturing and Distribution
Agreements between Registrant,
Naska Pharmacal and Rugby
Laboratories, Inc I/B/R (2)
</TABLE>
II - 6
<PAGE> 70
<TABLE>
<S> <C> <C>
10F 1995 Agreement between the Registrant
and RiboGene, Inc. I/B/R
10G Employment Agreement with
Dr. Vincent D. Romeo I/B/R
10H Restructure Agreement with Basil
Properties I/B/R
10I Stock Option Agreements I/B/R
10J License Agreement with The DuPont Merck
Pharmaceutical Company I/B/R (3)
22 Report Regarding Matters Submitted
to Vote of Security-Holders None
23A Consent of Bruce R.Thaw, Counsel to
the Company
23B Consent of Robbins, Greene, Horowitz,
Lester & Co., LLP Certified Public
Accountants.
</TABLE>
- --------------------------------
(1) Filed as an exhibit to the Registration Statement on
Form S-18 (File No. 2-88605-NY) of the Registrant and
incorporated herein by reference.
(2) Filed as an exhibit to the Registration Statement on
Form S-1 (File No. 33-5717) of the Registrant and
incorporated herein by reference.
(3) Filed as an exhibit to the Registration Statement on
Form SB-2 (File No. 33-70180) of the Registrant and
incorporated herein by reference.
(b) Financial Statement Schedules
The Financial Statement Schedules of Regulation S-B are omitted
because they are not applicable, not required or because the required
information is included in the Financial Statements and Notes thereto.
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
II - 7
<PAGE> 71
(i) To include any prospectus required by Section 10 (a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement or any
material change to such information in the Registration Statement, including
(but not limited to) any addition or deletion of a managing underwriter.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) That, for the purpose of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to any charge provision, by-law contract,
arrangements statute, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II - 8
<PAGE> 72
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, duly authorized at Hauppauge, New York on the 26th
day of December, 1995.
NASTECH PHARMACEUTICAL COMPANY, INC.
By:/s/ Devin N. Wenig
-------------------------
DEVIN N. WENIG, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Devin N. Wenig Chairman of the Board December 26, 1995
- --------------------------
DEVIN N. WENIG
/s/ Dr. Vincent D. Romeo President, Chief Executive Officer
- -------------------------- (Principal Executive Officer) December 26, 1995
Dr. VINCENT D. ROMEO
/s/Joel Girsky Director, Secretary/Treasurer
- ------------------------------------ (Principal Financial and
JOEL GIRSKY Accounting Officer) December 26, 1995
/s/ Dr. Ralph Jacobsen Director December 26, 1995
- -------------------------------
DR. RALPH JACOBSEN
/s/ Bruce R. Thaw Director December 26, 1995
- --------------------------
BRUCE R. THAW
/s/ Alvin Katz Director December 26, 1995
- ---------------------------------
ALVIN KATZ
/s/ John V. Pollock Director December 26, 1995
- --------------------------
JOHN V. POLLOCK
/s/Dr. Ian Ferrier Director December 26, 1995
- ---------------------------
DR. IAN FERRIER
</TABLE>
II - 9
<PAGE> 73
EXHIBIT INDEX
The following Exhibits, required by Item 601 of Regulation S-B, are filed as
part of this registration statement. Where such filing is made by
incorporation by reference (I/B/R), reference is made to Commission file number
0-13789 unless another statement or report is identified in parentheses.
<TABLE>
<CAPTION>
Official Sequential
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
1A Form of Underwriting Agreement I/B/R (3)
1B Form of Representative's Warrant I/B/R (3)
3A Articles of Incorporation of Registrant, as
amended and filed with the Secretary of
State of Delaware on November 8, 1993 I/B/R (3)
3B Amended By - Laws of Registrant I/B/R (3)
4A Specimen of Common Stock Certificate
of Registrant I/B/R (3)
4B Specimen Warrant Certificate I/B/R (3)
4C Form of Warrant Agreement I/B/R (3)
5 Opinion of Counsel as to the legality
of securities being registered
10A Licensing Agreement with UKRF I/B/R (1)
10B Lease for facilities at 45 Davids
Drive, Hauppauge, NY I/B/R
10C Sublicense Agreement with
Bristol-Myers Squibb Co. I/B/R (2)
10D Manufacturing and Distribution
Agreement between Registrant
and Nature's Bounty, Inc. I/B/R
10E Manufacturing and Distribution
Agreements between Registrant,
Naska Pharmacal and Rugby
Laboratories, Inc I/B/R (2)
10F 1995 Agreement between the Registrant
and RiboGene, Inc. I/B/R
10G Employment Agreement with
Dr. Vincent D. Romeo I/B/R
10H Restructure Agreement with Basil
Properties I/B/R
10I Stock Option Agreements I/B/R
10J License Agreement with The DuPont Merck
Pharmaceutical Company I/B/R (3)
22 Report Regarding Matters Submitted
to Vote of Security-Holders None
23A Consent of Bruce R.Thaw, Counsel to
the Company
23B Consent of Robbins, Greene, Horowitz,
Lester & Co., LLP Certified Public
Accountants.
</TABLE>
- -------------------------------
(1) Filed as an exhibit to the Registration Statement on
Form S-18 (File No. 2-88605-NY) of the Registrant and
<PAGE> 74
incorporated herein by reference.
(2) Filed as an exhibit to the Registration Statement on
Form S-1 (File No. 33-5717) of the Registrant and
incorporated herein by reference.
(3) Filed as an exhibit to the Registration Statement on
Form SB-2 (File No. 33-70180) of the Registrant and
incorporated herein by reference.
<PAGE> 1
Exhibit 5
Law offices of
BRUCE R. THAW
45 Banfi Plaza
Farmingdale, NY 11735
December 26, 1995
Nastech Pharmaceutical Company Inc.
45 Davids Drive
Hauppauge, NY 11788
Gentlemen:
We have acted as counsel for Nastech Pharmaceutical Company Inc., a
Delaware corporation (the "Company") in connection with the proposed issue and
sale by the Company of 1,485,000 Shares of Common Stock, $.006 par value.
As counsel to the Company, we have examined the minute books of the
Company, together with copies of its certificate of incorporation, as amended,
and by-laws. We have also examined the proposed Post-Effective Registration
Statement on Form SB-2 (Securities and Exchange Commission File No. 33-70180),
and the exhibits to said Registration Statement. Based upon the foregoing, and
our examination of such other documents as we deemed pertinent, we are of the
opinion that:
1. The Company is a corporation duly organized and validly existing
and in good standing under and by virtue of the laws of the State of Delaware.
2. The authorized capital of the Company consists of (i) 100,000
shares of Preferred Stock, par value $.01 per share, of which no shares of
Preferred Stock are presently issued and outstanding, and (ii) 6,000,000 shares
of Common Stock, par value $.006 per share, of which 3,221,447 shares are
issued and outstanding, fully paid and non-assessable shares of Capital Stock
of the Company as of September 30, 1995.
3. The 1,485,000 Shares which are the subject of the Registration
Statement have been duly authorized and the shares when issued and delivered
against payment therefor will be legally issued and outstanding, fully paid and
non-assessable.
Very truly yours,
/s/ Bruce R. Thaw
BRUCE R. THAW
<PAGE> 1
Exhibit 23A
CONSENT OF COUNSEL
We hereby consent to be named in the Registration Statement filed by
Nastech Pharmaceutical Company Inc., as attorneys, who will pass upon legal
matters for the Registrant in connection with the sale of the Shares of the
Registrant.
Farmingdale, New York
December 26, 1995
Law Offices of
BRUCE R. THAW
/s/ Bruce R. Thaw
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<PAGE> 1
Exhibit 23B
Consent of Independent
Certified Public Accountants
The Board of Directors
Nastech Pharmaceutical Company Inc.
We consent to the use of our report included herein and to the
reference to our Firm under the heading "Experts" in the Prospectus.
New York, New York
December 26, 1995
/s/ Robbins, Greene, Horowitz, Lester & Co., LLP
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Robbins, Greene, Horowitz, Lester & Co., LLP
